We’ve had two major boom/bust cycles since then, but 2014 was the last time the price for a barrel of West Texas Intermediate topped the $90 mark. That is, until Thursday afternoon, when the index price hit that level again as crude prices had risen by 2% on the day. Since January 1, the price for WTI has risen by 19%.
Also on Thursday, Enverus said its weekly count of active rigs stood at 720, up 14 for the week and 5% from a month ago. Its’ Gulf Coast count, which includes the Eagle Ford Shale, rose to 90, the highest level that region seen since the pre-COVID era of October, 2019.
The major jump in oil prices Thursday comes a day after the OPEC+ cartel agreed once again to stay with its program of adding 400,000 additional barrels of oil per day back onto the global market at the first of each month amid speculation by some observers they might do more. Obviously, the market deemed that news to be insufficient to balance supply with demand, perhaps in part due to the reality that some OPEC+ member nations have had a hard time meeting their production allocations over the last 6 months.
The rig count information isn’t exactly a full drilling boom kind of number. The Enverus count regularly topped 1,000 active rigs throughout 2017 and much of 2018, and topped 2,000 during several weeks in the midst of the huge shale drilling boom in 2014. However, it is a signal that companies are quickly implementing the new, more robust drilling budgets for 2022 that companies like ExxonMobil and Chevron have been announcing in their recent investor calls.
For consumers, there is no good news to be had where oil prices are concerned. This week’s latest jump in crude prices comes even as the Biden Energy Department released more crude from the Strategic Petroleum Reserve onto the market, and amid speculation that China will release millions of barrels soon from its own reserve. Of course, that promise by China, reported by Reuters and others on January 14, was supposed to begin with the Lunar New Year, which started February 1. As of this writing, China’s government had yet to announce any such release.
Absent some major news out of China, basically every market indicator at this point is bullish on continued increases in crude prices, meaning that projections by J.P. Morgan and Goldman Sachs for $100 oil prices later in 2022 could in fact become a reality before spring. It could come even sooner than that, depending on what Vladimir Putin and Russia decide to do vis a vis Ukraine in the coming weeks.
Louise Dickson, senior oil markets analyst at Rystad Energy, was quoted by CNBC as saying, “The market remains bullish on oil prices, as it has since May 2020 when OPEC+ enacted mega cuts to its output bringing oil from negative territory to a quite reasonable jump away from $100 per barrel.”
This dynamic will mean higher prices at the gas pumps for U.S. drivers, which AAA reports are already approaching recent highs recorded last fall, and higher transportation costs for all kinds of consumer goods that will place upwards pressure on the already high rate of inflation. It all comes as unwelcome news for a Biden Administration that has been struggling to find ways to stem the inflationary tide.
Of course, higher oil prices tend to lead to more drilling in the U.S. domestic industry. During a normal business environment, we might expect the U.S. industry to drill itself out of a state of prosperity, as it has regularly done in the past, creating a supply surplus that would cause prices to recede. Unfortunately, the Biden administration has worked to do everything it can to impede the industry over the last year, even as ESG investor groups have striven to deny companies access to capital needed to finance their projects.
In fact, Biden is so dead set on hampering the domestic oil industry that today’s price and rig count news comes even as the U.S. Senate considers his nomination of a long-time anti-oil industry activist, Sarah Bloom Raskin, to be the next vice chairman of the Federal Reserve. Ms. Raskin is just the latest in a long line of industry opponents the President has appointed to senior positions in his administration. Other examples include two cabinet members, Energy Secretary Jennifer Granholm and Interior Secretary Deb Haaland.
If everyone would get out of the industry’s way, the current high prices would, as in the past, likely be a temporary phenomenon. But things are different now, and this is no normal business environment. Thus, unless something changes, crude prices seem to have no way to go but up.
