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Big Oil is making money but losing sleep. Sure, high oil prices are nice; we\u2019ll find out next week exactly how nice when the majors report first-quarter earnings. But what goes up must eventually come down. And even though US oil executives and insiders are worried that energy market disruption stemming from the war in Iran is poised to get significantly worse, they\u2019re not ready to ramp up drilling to counteract it.<\/p>\n
\u201cThe real problem is the back end of the curve is lying to us,\u201d Kaes Van\u2019t Hof, CEO of Texas independent producer Diamondback Energy, said during an energy summit at Columbia University this week. He was referring to the widening gap between the high price for oil delivered today, and the significantly lower price for oil futures contracts, a gap that reflects Wall Street\u2019s sanguine view that the Strait of Hormuz will be reopened soon.<\/p>\n
The low future price signal is both misleading \u2014 because it severely underplays the likelihood of forthcoming major disruptions to airlines, food systems, and other energy users \u2014 and a deterrent to drilling investment, Van\u2019t Hof said: \u201cI do think you\u2019ll see US production respond slightly, but it\u2019s nothing compared to the size of the issue, like putting a garden hose into an emptied Olympic-sized swimming pool.\u201d<\/p>\n
Backstage at the Columbia event, other energy executives and observers expressed frustration about what they see as mixed signals from the Trump administration \u2014 which says publicly the crisis is almost over but privately is still urging companies to drill more \u2014 and trepidation about the possibility that increasing US oil exports, a development Trump has celebrated, could backfire by driving up domestic prices and fueling political momentum for a crude oil export embargo, a move that would be disastrous for the industry.<\/p>\n
Throughout the conflict, execs and observers told me, the administration ignored or downplayed well-known red flags about risks to the strait, waited too long to try to rally the industry, and failed to take preparatory measures that could have given the energy market a bit more flexibility and bought Trump\u2019s negotiators more time.<\/p>\n
Traders and US officials also got too comfortable over the past few years with the idea that massive US production could buffer any geopolitical shock, Bob McNally, president of the consulting firm Rapidan Energy Group and former energy adviser to President George W. Bush, told me. Now they\u2019re being Pollyannaish. \u201cAll the barrel-counters agree the Hormuz disruption is going to cause a severe crisis due to shortages and price spikes, but so far the broader community of macro investors and traders seems to have a rosier view,\u201d he said. \u201cIt\u2019s extremely rare \u2014 if not unprecedented \u2014 for all barrel-counters to agree, so someone\u2019s really wrong.\u201d<\/p>\n<\/p><\/div>\n