Trump Is Placing Too Much Faith in the Shale Patch
The White House is leaning heavily on the booming U.S. shale patch.
Secretary of State Mike Pompeo said Monday the U.S. will end waivers for imports of Iranian oil, closing out a 180-day transition period granted to eight countries that rely on the Middle Eastern heavyweight to supply their energy needs. The administration hopes U.S. oil producers can fill in some gaps. Oil prices hang in the balance.
Sanctions on Iran were a big part of oil-price swings in the past year. Last fall, Brent crude peaked at over $86 a barrel as the market anticipated the clampdown. After the U.S. granted exemptions, prices tumbled by more than 30%. They have since crept up on 1.2 million barrels a day of cutbacks by the Organization of the Petroleum Exporting Countries plus Russia, rallying nearly 3% on Monday’s news to a nearly six-month high of $73.86.
Iranian production and exports last month were about 1.1 million and 1.25 million barrels a day below their presanctions peaks last spring, respectively, according to data from OPEC and RBC Capital Markets. Total exports are now around 1.33 million barrels a day.
Large corporate buyers which depend on U.S. capital markets for funding, such as India’s Reliance Industries and South Korea’s SK Global, are likely to comply quickly. China might draw out the process, but it leaves other producers picking up some 500,000 barrels daily the market could be short. President Donald Trump tweeted Monday that Saudi Arabia and other OPEC members would step in. Even if they reverse all of their cuts early, it would be tough to counterbalance a watertight sanctions regime.
Mr. Pompeo referenced U.S. production in his statements. It is ramping up, but U.S. producers are being mindful of costs and haven’t reacted much to this year’s rally. Barclays estimates spending in North America will be down 1% in 2019, which could crimp growth. The administration’s squeeze on Iran means that America’s race to energy independence has fresh urgency.
Source: Wall Street Journal