Analysis by Energy Workforce President Tim Tarpley
Oil rose back above $100 on Tuesday after the US launched fresh strikes on Iran, attacking missile launch sites and a number of Iranian mine-laying vessels in the Strait. Brent crude had been as high as $126 as recently as late last month. The spike this week has been attributed by analysts to increasing concern about significant disruptions should the Strait of Hormuz continue to remain closed into June. Saudi Aramco predicted on Monday that if the strait remains closed for further weeks, it expected “oil supply challenges” to affect the market until next year. Oil coming through the Strait is down about 14.4m barrels a day, down from 20m prior to the conflict.
The continued disruption in the Middle East is starting to show up in production estimates and analysis for the coming years. The Permian basin, while unable to make up the entire disruption (which would require nearly doubling production), will still see significant increases. The US Department of Energy expects production this year to show a 0.75% annual increase to 6.63m barrels a day, with a projected 6.1% increase next year, bringing production to the 7 million bpd threshold.
In addition to the disruptions in the Middle East, the Ukrainian’s have had a series of successes in targeting Russian oil production and refining facilities in the past few weeks. A May 21st attack on the Syzran oil refinery in the Samara region fully halted operations, which is the sixth refinery knocked offline this month. Robert Brovdi, commander of Ukraine’s Unmanned Systems Forces, stated that his forces alone have struck 10 major Russian refineries since the start of May. The combined effects of these attacks have curtailed roughly a quarter of Russia’s total, more than 30% of its gasoline production, and around 25% of its diesel output. Like the disruptions in the Middle East, this conflict shows no signs of a near-term end, with a peace deal still elusive and with the Ukrainians appearing to be gaining growing momentum in the over 4-year-old conflict.
All in all, it would be safe to assume that we will continue to see disruptions in the worldwide oil and gas markets for at least the remainder of this summer, with production in North and South America continuing to benefit.
Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.
