U.S. oil and gas executives expect traffic through the Strait of Hormuz to be constrained through August — with little change in U.S. crude output to offset the drop in Middle East oil, according to a survey conducted by the Federal Reserve Bank of Dallas.
Most of the executives in the survey released Thursday also said they expect shipping costs for oil from the Persian Gulf to rise even after the U.S. war with Iran ends due to higher insurance rates and tolls.
The results indicate the oil and gas industry is skeptical of the Trump administration’s assurances that the Strait of Hormuz, a critical chokepoint for about 20 percent of the world’s global oil deliveries that Iran has effectively closed, will soon reopen — or that oil markets will quickly return to normal after that. U.S. benchmark crude prices were $94 a barrel Thursday, almost $30 higher than when the bombing started nearly two months ago.
Anonymous responses to the survey from 116 executives in the Dallas Fed’s district of Texas, southern New Mexico and northern Louisiana — the heart of the U.S. energy industry — captured the sector’s rising frustration with the Trump administration over the uncertainty and increased shipping costs fomented by the conflict.
“The administration’s comment about an ‘Iran terror premium’ existing for decades with crude oil pricing is laughable,” said one exploration and production company executive. “But now the administration has created one where it did not exist before.”
Just 20 percent of respondents said they expected shipping traffic through the Strait of Hormuz to “return to normal levels” by May. The end of summer or even into the fall were the most common view — 39 percent said August and 26 percent said November — while 14 percent predicted it would take even longer.
And even when the fighting ends, the executives said restoring the energy sector in the Middle East would take much longer than the White House was predicting.
“Shut-in production in the Persian Gulf will eventually rise above pre-war levels, but it will take time,” another respondent said. “This is not a quick return to production.”
Forty-eight percent of respondents said it was “very likely” that geopolitical events would again disrupt the Strait of Hormuz in the next five years, while another 38 percent said it was “somewhat likely.”
The industry also expects to continue to pay more to ship from the Persian Gulf when the war ends. Seventy-nine percent of respondents expected higher insurance, freight costs and tolls to add at least $2 per barrel to shipping costs.
White House spokesperson Taylor Rogers pointed to some of the more optimistic responses to the survey, which she said “underscores what the President has been saying all along.”
One industry executive said “the price of oil will fall back to the $65-per-barrel level very quickly once this conflict settles down.” Another noted that “recent events are temporary.”
“The President brought oil and gas prices down to multi-year lows at record speed, and as traffic in the Strait of Hormuz normalizes, these energy prices will plummet once again,” Rogers said in a statement. “President Trump has been clear that these are short-term, temporary disruptions, but the United States maintains control as Operation Economic Fury continues to choke Iran’s economy and give the Iranian regime very little flexibility.”
The White House and members of the Cabinet have repeatedly pressed oil and gas executives to increase production in response to higher prices and tighter supply. But the survey indicates industry officials are wary of ramping up their drilling while prices continue to swing wildly.
“Extreme oil price volatility is leaving both small and large [exploration and production companies] unsure of whether to increase capital spending and activity,” one respondent said. “Closing the supply gap from the Iran conflict will require greater certainty and higher 2027 future prices to incentivize additional rig and frack deployments.”
The majority of respondents — 73 percent — said they expect U.S. oil production to increase by less than 250,000 barrels a day this year, a relative drop in the bucket compared to what’s been lost. Research firm Rystad Energy said last week it was tracking approximately 12.4 million bpd in curtailed oil production in the Persian Gulf.
Half of respondents said they also expected less than 250,000 bpd of additional U.S. production in 2027 because of the higher prices from the war, with 24 percent anticipating no change in output. Thirty-two percent said production would jump by more than 250,000 bpd but less than 500,000 bpd next year.
Current U.S. crude oil output stands near 13.6 million bpd, down about 225,000 bpd from the start of the year, according to the U.S. Energy Information Administration, the Energy Department’s independent statistical arm.
Another reason for the hesitation in ramping up production is the possibility that high prices and the risk of supply disruption spur nations to turn to alternative energy sources, one oilfield services executive said.
“Uncertainty is problematic in the oil and gas business, and this administration is the definition of uncertainty,” the executive said. “I expect to see material demand destruction come over the longer term as many societies will come to see hydrocarbons as no longer a certainty in a future of increased energy requirement.”
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