The oil market was tight even before Russia invaded Ukraine.
An oil chief tells me he doesn’t plan to produce more barrels this year, even with Texas crude recently shooting above $110. His reasoning in a moment. Plus, a global commodities strategist says armchair explanations for why we’re in this price jam are mostly off. And a pair of Wall Street banks ponder $200-a-barrel oil.
There were three oil spikes bigger than the current one—two in the 1970s, and one in 2008—and all were followed by recessions. A recession can mean the difference between a stock market correction, which the U.S. has already had this year, and a more painful bear market, which it has so far avoided. I went back to Muncrief to see if he had found any wiggle room, given recent events. “The plan is the same,” he says, and he reminded me that 5% growth is the cap—his production is more likely to be flat this year versus last year. It can take three months to drill a new rig, and Devon uses what are called multiwell pads, each with three to six wells, so if the company goes after more barrels today, it might produce them in nine to 12 months. Drillers are dealing with inflation of their own.
How about President Biden canceling the Keystone XL pipeline or not issuing permits for drilling on federal lands? I have a doctor’s note excusing me from politics, so I’ll leave arguments for and against these things to others. But they aren’t especially related to the immediate oil shock. Oil is still coming in from Canada by rail and the original Keystone pipeline.
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