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Waiting For The IEA To Make Up Its Mind

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The 2021 oil boom in the U.S. and globally continues to progress at a surprisingly measured pace. Self-discipline abounds across the industry spectrum, with U.S. producers restraining their normal impulse to drill themselves out of a state of prosperity and OPEC+ sticking to its conservative strategy of gradually raising production and exports to meet the world’s rapidly recovering demand for crude.

The same cannot be said for government entities in their respective roles in the energy space, however, as the Biden/Harris administration and International Energy Agency (IEA) continue to create needless destruction and confusion through their policy decisions, public reports and pronouncements. It often seems that, where governments are concerned, self-discipline and consistency are not seen to be desirable core competencies.

The Biden/Harris administration, in its unending efforts to curry favor with its big-money funders in the environmentalist lobby, got a big skin tacked firmly up on the wall this past week with the decision by TC Energy to formally cancel its Keystone XL pipeline. The President’s decision to cavalierly eliminate the thousands of jobs and billions of already-made investments by TC Energy was a watershed moment in presidential irresponsibility as it relates to U.S. energy policy, forever diminishing the level of confidence any business can have in the consistency of the federal government’s application of laws and regulations.

As noted in an earlier piece, the Department of Interior also made the recent decision, based on suspect reasoning, to indefinitely suspend 9 oil and gas leases that were sold in the Alaska National Wildlife Refuge by the Trump Administration in January. This was another decision made to placate the radical green community, one that, unlike the Keystone XL fiasco, will have little practical impact on the oil and gas industry since none of the 9 leases sold in January were bid on by actual oil and gas companies. The industry itself appears to have recognized that attempting to drill in ANWR is simply too costly, both from a dollar and a reputational standpoint, even if other interests haven’t.

Meanwhile, the internationalists who run the IEA can’t seem to make up their collective mind about what they want the global oil and gas industry to do. On Friday, an agency spokesman urged the members of OPEC+ to “open the taps” in order to help meet recovering demand even as it said in its next breath that uneven distribution of vaccines could jeopardize the ongoing recovery.

As if that weren’t confusing enough considered in a vacuum, IEA’s Friday advisory came just a couple of weeks after it had released a widely-ballyhooed report in which it urged the global community to discontinue all future investments in new oil and gas resources in order to meet the emissions goals in the Paris Climate Agreement. With the agency now admitting that global demand will recover to pre-pandemic levels within the next year and continue to grow for years into the future, it appears not to recognize that “opening the taps” and continuing to meet growing demand for crude will in fact require massive investments in exploration and production of new oil reserves.

All of these conflicting advisories and reports from a global energy authority must leave many oil executives feeling like spectators at a tennis match. Please, just make up your minds.

While all of that was going on, the price for a barrel of West Texas Intermediate flew past the $70 mark on Thursday for the first time in three years. With the international Brent price standing at $72.69 going into the weekend, the projection by Goldman Sachs

of $80 oil by the end of summer is looking pretty strong.

The active domestic rig counts by both Baker Hughes

and Enverus have now remained essentially static for two full months, even in the face of a rapidly improving commodity price over that period of time. This is an indicator of both ongoing self-discipline being exercised by corporate drillers as well as the likelihood that concerns over more rapid drilling by privately-held companies have been overblown.

With the financial community continuing to pressure this rapidly-consolidating industry to become more efficient and improve investor returns, the next benchmark will come in July and August, as the corporate producers begin to execute on their revised drilling budgets for the second half of the year. During booms of the past, this would have been a time when we would have seen new spikes taking place in rig counts and drilling permits, as companies attempted to take advantage of the higher prices. Such spikes, of course, helped to create global supply gluts and price collapses in fairly short order.

It appears increasingly likely that today’s industry, having just gone through two major boom/bust cycles in the last six years, is focused on avoiding the mistakes of the recent past. Only time will tell.

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