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Another High for Crude?

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All last week, crude prices trended higher after bouncing off the $100/bbl handle.

Despite the extended holiday, there has been some interesting news that could drive the market. One of the bits that got little coverage, but could be a sign of where oil prices could be going, was on Sunday evening.

The US Department of the Interior, which is responsible for drilling permits on federal lands, finally released notices of lease sales for on-shore oil and gas exploration. The agency touted it as “significantly reformed”. In fact, this included new Biden Administration criteria on “stakeholders” and increased royalties for production.

The end result, though, was that the amount of land available for exploration came out to 144K acres or 20% of what was originally allocated.

Talk doesn’t mean action

While the Biden Administration has been talking about the need to boost production, in practice things are different.

Recently, the White House announced that there were over 9,000 production licenses issued. However, those licenses need permits to actually start drilling. And permits went from a high of over 600 to just 183 last month.

Of course, that’s just federal lands. But private producers are reluctant to increase production as well. Last week, Baker Hughes’ rig count showed a modest 0.6% increase. The fourth increase showed the first monthly gain in over a year. Oil production has been slowly growing since the supply glut in the middle of the pandemic.

It’s still far from normal

Rig counts still remain below 700. That’s substantially lower than the average of over 800 in the pre-pandemic period. Total US crude production is up 4.5% compared to last year, in the middle of lockdowns. 11.5M bbl/day (still below the 12.9M bbl/day before the pandemic) helped keep prices down despite a growing economy.

Meanwhile, the strategically relevant Natural Gas production in the US remained steady throughout the pandemic. However, it fell a little despite the war in Ukraine and the increased demand from Europe.

It’s a price we have to pay

Over the weekend, the EU announced it was developing a plan to phase in a ban on Russian natural gas and oil. This would be similar to the ban on coal, but presumably with a longer transition period. However, they won’t release any details until after the French election.

The issue of oil prices remains geostrategic. There is enough supply to meet demand, it’s just that there is no interest in the West to buy Russian oil.

Analysts expected a renewed escalation in the Ukrainian conflict, with Russia resuming pressure in the East. Nonetheless, that has apparently been postponed. Western analysts disagree on the likelihood of the attack. US intelligence officials say another surge by Russian forces is imminent, while Ukrainian sources say it’s unlikely.

Over the weekend Russian state TV aired comments about not “prolonging” the war, in a shift in tone about the objectives in Ukraine. Some even aired criticism of the MoD’s strategy, citing the sinking of the Black Sea flagship. Moreover, there’s speculation that Putin will seek to wrap up the conflict before the May 9th Victory Day parade.

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