RBN Energy

Vladimir Putin’s fateful decision to invade Ukraine and the ongoing brutality have made Russia a pariah state to many leading hydrocarbon-consuming nations, which in turn has caused cuts in Russian crude oil production and exports. That raises a few important questions, chief among them the degree to which other producers — including the U.S. and the non-Russian members of OPEC+ –– can ramp up their production and displace Russian oil. U.S. output has been increasing recently, albeit only gradually, and production could rise much more quickly under the right circumstances. But if it does, would there be enough crude export capacity available along the Gulf Coast to handle, say, another 500 Mb/d or 1 MMb/d? In today’s RBN blog, we examine the ability of key U.S. export facilities to stage, load and ship out increasing volumes of oil.

Increases in crude oil and gasoline prices have caused widespread concern in recent months, made worse after Russia’s invasion of Ukraine that added even more uncertainty to the market. With the average U.S. price for regular gasoline now topping $4/gal — nearly 50% above where it was a year ago — the rising fuel costs have been especially painful for everyday drivers and threaten to slow or derail a global economy still recovering from the pandemic-induced recession. Government officials in the U.S. and elsewhere, while urging oil producers to ramp up output, have turned to their strategic reserves as a way to quickly balance the market and rein in prices. In today’s RBN blog, we look at the International Energy Agency’s (IEA) latest announced release from oil reserves, how the global drawdowns are intended to create a bridge to when increased production comes online, and the skepticism about whether those plans will work out as intended.

At first glance, it would appear that President Biden’s announcement regarding the release of up to 180 MMbbl of crude oil from the Strategic Petroleum Reserve over the next six months could have a significant impact. After all, it would, in a sense, increase the flow of U.S. oil into the market by almost 9% –– 11.7 MMb/d of current U.S. production plus an incremental 1 MMb/d from the SPR — and boost global supply by about 1%, which is no small thing. There are a few unknowns, though, such as (1) how much sweet crude oil and how much sour will be released, (2) where the pipelines connected to the four SPR sites could take that oil, (3) whether those pipelines have sufficient capacity to absorb the incremental flows out of SPR, and (4) what the ultimate market impacts of the SPR releases will be. In today’s RBN blog, we look at the president’s announcement and its implications.

There’s a lot of confusion out there — both in the media and the general public — about how producers in the U.S. oil and gas industry plan their operations for the months ahead and the degree to which they could ratchet up their production to help alleviate the current global supply shortfall and help bring down high prices. It’s not as simple or immediate as some might imagine. There are many reasons why E&Ps are either reluctant or unable to quickly increase their crude oil and natural gas production. Capital budgets are up in 2022 by an average of 23% over 2021. That increase seems substantial, but about two-thirds (15%) results from oilfield service inflation. And there are other headwinds as well. In today’s RBN blog, we drill down into the numbers with a look at producers’ capex and production guidance for 2022, the sharp decline in drilled-but-uncompleted wells, the impact of inflation and other factors that weigh on E&Ps today.

The world is in desperate need of more crude oil right now and anybody with barrels is scouring every nook and cranny for any additional volume that can be brought to market. Some of that may come from increased production, but the oil patch is a long-cycle industry, just coming off one of the most severe bust periods ever, and it will take time to get all the various national oil companies, majors, and independents rowing in the same direction again. For now, part of the answer will be to drain what we can from storage — after all, a major purpose of storing crude inventories is to serve as a shock absorber for short-term market disruptions. To that end, the U.S. is coordinating with other nations to release strategic reserve volumes to help stymie the global impact of avoiding Russian commodities. Outside of reserves held for strategic purposes though, commercial inventories have already been dwindling as escalating global crude prices have been signaling the market to sell as much as possible. Stored volumes at Cushing — the U.S.’s largest commercial tank farm and home to the pricing benchmark WTI — have been freefalling for months, which raises the question, how much more (if any) can come out of Cushing? In today’s RBN blog, we update one of our Greatest Hits blogs to calculate how much crude oil is actually available at Cushing.

WTI is selling for north of $120 a barrel, gasoline and diesel are retailing for more than $4.10 and $4.80 a gallon, respectively, and, with Russia continuing its unprovoked war against Ukraine, it’s hard to imagine prices for hydrocarbons easing by much anytime soon. As startling as the recent spikes in crude oil and refined products prices may be, however, it’s worth keeping in mind that, in real-dollar terms, prices for these commodities have been considerably higher in the past, including through much of the 2006-14 period and back in 1979-81. And don’t forget, the car, SUV, or pickup you’re driving today consumes about two-thirds as much fuel per mile, on average, as the vehicle you (or your parents) drove back when Ronald Reagan was running for president and Pink Floyd’s The Wall was the best-selling album. In today’s RBN blog, we put today’s “record-breaking” prices for crude oil and motor fuels in perspective.

Well, it took a hot war in Europe, constrained capital spending by U.S. producers, continued restrictions in OPEC+ production, and ongoing economic recovery from a global pandemic, but it’s finally happened: Brent shot past $100 and even $105/bbl Thursday before dropping in the last hour of trading to settle a hair above $99. Even WTI touched $100/bbl briefly. The market has been buzzing about the prospects for the breach of this threshold since October, coming along with waves of speculative trades, a dozen false starts, and countless pundit predictions. Now that it has happened, what does it mean — other than higher gasoline prices, of course? In the good ole days, high prices would spur production growth that would help bring prices back down — eventually. But this time, things are different. Which begs the #1 question: Will triple-digit oil prices last? In today’s RBN blog, we’ll consider these issues in the context of historical price behavior and what we might expect this time around.