Oil Execs See No Quick Fix for Iran War-Related Market Disruptions: Dallas Fed

Oil executives surveyed by the U.S. Federal Reserve Bank of Dallas are pessimistic about a quick reopening of the Strait of Hormuz and frustrated by market uncertainty generated by the Middle East conflict.

That uncertainty makes it likely that U.S. oil producers will not significantly boost production in the near term to meet global demand, according to the survey released Thursday by the Dallas Fed.

The survey was compiled from responses by 120 oil and gas corporate executives between April 15 and April 20.

Asked when they expected traffic through the Strait would return to normal, only 20% said they expected a reopening by May, 39% said August and 26% said November. The remaining 14% expect it to take even longer, according to the survey.

The executives also expect that even once the Strait reopens, it is likely geopolitical events will disrupt traffic again within the next five years. Of the executives polled by the Dallas Fed, 48% said future disruptions are very likely, 38% said somewhat likely and 14% said unlikely.

The respondents also said the conflicts are likely to increase the cost of delivering oil from the Persian Gulf once shipping traffic resumes, with 36% of respondents forecasting prices will increase by between $2/bbl and $4/bbl. Another 20% said they expect prices to increase by $4 to $6/bbl, and 23% said prices increases will likely be more than $6/bbl.

When asked how much they expected U.S. oil production to increase as a result of the Iran war, 30% said they expected no change this year while 43% said they expected it to increase by no more than 250,000 b/d. Also, 17% expected an increase of 250,000-500,000 b/d while 6% expected increases to range between 500,000-750,000 b/d.

Current U.S. crude production is estimated at about 13.6 million b/d.

Oil executives are a little more confident that production will increase next year,with 26% expecting it to increase by no more than 250,000 b/d, 32% by 250,000 b/d to 500,000 b/d and 13% by 500,000 b/d to 750,000 b/d.

Respondents also are largely confident that Persian Gulf production that has been shut in will eventually restart, with 32% saying they expect 90%-100% of production to return, 32% saying they expect all shut-in production to be restored,and 20% saying they expect 80%- 90% of production to come back online.

Comments published with the survey results indicate executives are wary of committing to increasing domestic output due to recent price volatility in oil markets.

“Extreme oil price volatility is leaving both small and large E&Ps unsure of whether to increase capital spending and activity,” one executive said.

“With all of the chaos, predicting anything in the energy sector is very difficult,”another respondent said.

Reporting by Steven Cronin, scronin@opisnet.com