Oil prices surge as U.S. bans Russian energy imports
The U.S. and U.K. decisions Tuesday to ban Russian energy imports sent oil prices surging yet again.
Why it matters: The oil import ban will help choke off a little of Russia’s main source of revenue, but here at home the soaring prices will also filter down to the cost of gasoline and consumer goods.
- Prices' steady march higher has led to louder calls by some for the U.S. to quickly ramp up domestic oil drilling — but that's easier said than done.
By the numbers: The 519 active U.S. oil rigs mark a huge jump from the depths of the pandemic — but the count is still at just 60% of its 2019 peak.
The big picture: The U.S. is effectively energy independent, meaning that it produces about as much oil as it consumes, as my colleague Neil Irwin reported.
- About 3% of U.S. imports of oil come from Russia (8% including all petroleum products) — and while that’s not a ton, there’s still a knock-on effect in world markets.
- “Although the impact [of the ban] on U.S. supply may be limited, prices are soaring because the ban makes it more of a challenge to trade in Russian oil and more likely that other countries may follow suit,” wrote Rystad Energy's head of oil markets, Bjørnar Tonhaugen, in a note.
Meanwhile, someone has to replace those lost imports and fill the gap in demand. President Biden has appealed to OPEC, the group of largely Middle East oil-producing countries, to start raising production — so far to no avail.
But, but, but: Why doesn’t the U.S. just drill more oil? The answer comes down to “discipline,” an industry buzzword that means companies don’t just turn on the spigot full force every time prices go up.
- Producers have gotten a lot more cautious, thanks to recent waves of bankruptcies that came after some took on high levels of debt to fund exploration and production.
- Investors in recent years have demanded more focus on dividends and steady shareholder returns — rather than big, risky bets on growth that won't pay off if prices head south again.
And then there's the supply chain.
- Occidental Petroleum CEO Vicki Hollub said yesterday that a lack of materials, skilled labor and other supply chain troubles significantly limit U.S. shale producers' ability to jack production back up, Reuters reports.
What to watch: U.S. oil ended yesterday at around $124 a barrel. If Europe joins the U.S. in a complete ban on energy imports from Russia, research firm Capital Economics estimates that prices could "easily" settle at $150 in the coming months.
Editor’s note: This story has been corrected to state that Capital Economics (not Rystad) estimates oil could hit $150.