Ref: AD-2975
Summary: a clear lack of understanding among key policymakers in Washington over how commodity markets really work stands to make the war-induced energy crisis even worse than would otherwise have been the case.
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The Dallas Fed has just released an update to its highly regarded quarterly energy survey which makes interesting reading all round — and unhappy reading for Donald Trump.
The long and the short of it is that, despite the elevated oil price and pressure from the Administration to boost production, shale producers are pretty much sitting tight with few believing that the US’s total output will rise by more than 500,000bpd this year. Underpinning their reluctance to invest in new output is the current market volatility (including the gap between futures and spot) and what they see (rightly) as continuing uncertainty. There is also a majority (if, in my opinion, overly optimistic) view that the flow of oil through the Strait of Hormuz will return to something like normal by August.
Small producers — invariably the earliest movers — are looking to boost their output. But even they are not rolling out new rigs. So, any boost to production is moving only at a snail’s pace.
Set this against Amrita Sen’s forecast that already unusually high exports last month at 1mbpd will rise to 2mbpd this month (which was borne out earlier this week by Kpler data showing that the number of VLCCs currently heading to the US to load is almost triple the average/day through 2025) and it is clear that pump prices in the US are set to remain significantly elevated well into the driving season which kicks off in July. Barring dramatic government intervention of some sort in the market any additional affordability-induced impact on voter sentiment at this time will almost surely stick all the way to the midterms.