Oil Prices Rise Amid Uncertainty About Supply

Crude oil prices in the U.S. and internationally moved upward as fighting in the Middle East increased uncertainty about oil supplies.

Brent crude oil traded on the international exchange reached $86 per barrel and West Texas Intermediate (WTI) rose to $81 on March 27.

“While demand uncertainty persists, geopolitics risk, a weakening dollar, and OPEC+ supply cuts have moved prices higher,” OilPrice.com reported.

Ukraine drone strikes on Russian refineries and the fighting in the Middle East have resulted in hedge funds increasing long positions held on the New York Mercantile Exchange WTI rise by 50 million barrels and ICE Brent net longs increased by almost 55 million barrels, the biggest positioning move of the year so far, according to OilPrice.com.

The Federal Reserve Bank of Dallas released its quarterly survey of oil company executives this week and a majority expects WTI oil price to average $80 at year-end 2024.

Activity in the oil and gas sector was relatively unchanged in the first quarter of 2024, according to oil and gas executives responding to the Dallas Fed Energy Survey.

“The business activity index, the survey’s broadest measure of conditions energy firms in the Eleventh District face, was 2.0 in the first quarter, suggesting little to no growth during the quarter. The index was essentially unchanged from last quarter,” the Dallas Fed said in a news release.

Oil and gas production decreased in the first quarter, according to executives at exploration and production (E&P) firms, according to the Dallas Fed. The oil production index moved down from 5.3 in the fourth quarter 2023 to -4.1 in the first quarter, suggesting a small decline in production. Meanwhile, the natural gas production index turned negative, falling sharply from 17.9 to -17.0.

“Costs increased at a slightly faster pace for both oilfield services and E&P firms,” the Dallas Fed said. Among oilfield services firms, the input cost index increased from 21.3 to 31.2. Among E&P firms, the finding and development costs index was relatively unchanged at 24.2. Meanwhile, the lease operating expenses index increased from 22.6 to 33.7.

Oilfield services firms reported modest deterioration in nearly all indicators.

“The aggregate employment index was relatively unchanged at 3.4 in the first quarter. While this is the 13th consecutive positive reading for the index, the low-single-digit reading suggests slow net hiring. Additionally, the aggregate wages and benefits index increased from 21.2 to 32.8,” the Dallas Fed said.

Alex Mills is the former President of the Texas Alliance of Energy Producers.