Oil and gas leaders: Trump Iran deal is good news, normalization to take months

Texas oil and natural gas industry leaders are cautiously optimistic about the president's announced ceasefire deal with Iran. President Donald Trump announced he plans to sign a deal with Iranian leaders on Friday, ending more than 100 days of a U.S.-Israel-led conflict that shut down the Strait of Hormuz and resulted in retaliatory attacks against U.S. allies' oil and gas refineries. The conflict caused the Dow Jones, S&P 500 and Nasdaq Composite to all report losses over the last few months. It also caused oil futures to top $120 a barrel, as the least expensive gas at the pump also topped $4 a gallon for the first time in Texas history. In other states, gas and diesel reached record highs but in Texas, home to refineries and record exports, gas prices reached an all-time high. The conflict had rippling effects in Middle Eastern countries forcing Saudi Arabia, Kuwait, UAE, and Iraq to cut oil production and shut down several refineries critical to the region after they were damaged by Iranian retaliatory fire, The Center Square reported. By April, the conflict had caused a net loss of up to 14.5 million barrels per day (bpd) of crude oil being transported through the Strait; aluminum, helium and fertilizer shortages were increasing, a jet fuel crisis was expected, and insurance companies were dropping coverage for cargo ships or increased premiums by 50%, The Center Square reported. "A ceasefire framework and the prospect of a formal agreement with Iran are welcome developments for global energy. The closure triggered the largest supply disruption in the history of the global oil market, with roughly one-fifth of global oil consumption flowing through that strait daily before the conflict," Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association (TIPRO) told The Center Square. "Hundreds of ships remain trapped in the Persian Gulf, Gulf producers need time to restart throttled-back output, sea mines remain in the waterway, and core nuclear issues between Washington and Tehran are unresolved. Full normalization will take months," he said. He also reemphasized that the U.S. has been meeting global oil demand, led by Texas. Texas operators continued to break production records as well as exports of liquified natural gas (LNG), The Center Square reported. "What this crisis has confirmed is the irreplaceable value of American oil and gas. When the Strait closed, the United States stepped into the supply gap and partially offset what would have otherwise been a far more severe global price shock. No other energy-producing nation can mobilize at the speed or scale of the United States and the Permian Basin in particular," he said, referring to producers in west Texas and southeast New Mexico. "A durable peace agreement is good news, but the lesson of the last several months is unambiguous. Robust domestic production is not an economic preference, it is a national security necessity, and the American oil and gas industry delivered when the world needed it most," Longanecker said. Texas Oil & Gas Association president Todd Staples agreed, telling The Center Square that "an end to conflict and a successful diplomatic resolution signal a positive outcome for Americans and their allies alike. The oil and natural gas industry hopes for a speedy resolution and a return of predictability, because predictability supports planning. As global markets and shipping logistics adjust to this important step toward peace, Texas operators will continue to do what they do best by utilizing our state's plentiful resources to deliver the energy that powers our modern way of life." Houston-based Andy Lipow with Lipow Oil Associates LLC addressed an obvious result consumers are already seeing at the pump: "The good news for consumers is that the oil market is selling off in anticipation of the reopening," he told The Center Square. "We should see the national retail price of gasoline drop below $4 this week. That's still a far cry from where it was prior to the conflict beginning when it was $2.98 at the end of February, but still 50 cents a gallon cheaper than where it was about one month ago." Oil futures fell to their lowest level since early March after the news of a ceasefire broke. The West Texas Index, the domestic benchmark, dropped to $80.75 a barrel. The international benchmark, Brent, dropped to $83 a barrel. All three major U.S. indexes also jumped after the news. Lipow said there are still issues in the Strait like clearing mines, insurance companies adjusting prices for tankers and cargo ships "to say it is safe" enough to operate and insure them. Companies "need assurance of a safe shipping lane" and "guarantees from the Iranian government and IRGC that vessels will not be impeded, attacked, or seized," he said. The Wall Street Journal reported "senior U.S. officials said it could take more than two weeks to resume normal shipping operations in the strategic waterway" and "it could take some time to get the straight up and running." For U.S. domestic oil producers, "higher prices have encouraged some companies to put additional rigs to work, but if prices fall significantly, they may be forced to curtail future spending in the oil patch" in the Permian Basin, Lipow said. Rig counts have increased by seven in the U.S. over the past year, according to Baker Hughes as of June 5. Internationally, rig counts are down by 25. Longanecker also provided a cautionary note adding that "Monday's price drop is a risk-premium correction, not a restoration of normal supply."