In a testament to the professionalism of our market, and the growing global immunity to the ongoings of war that two invasions of sovereign territory are greeted with only a mild reaction in prices. This of course refers to the downing of Russian military hardware by Polish and NATO forces as weaponry transiting to Ukraine from Russia is shot down. The other more outrageous but also shrugged off airspace abuse is the targeting of Hamas leaders by Israel in the Qatar capital of Doha. The only possible foil to an emboldened Vladimir Putin and Benjamin Netanyahu is the United States. But the two mentioned warmongers know the US is hamstrung in not wanting to have a full face-off with its old Cold War enemy or risk losing the massive pro-Israel vote in its electorate if it forsook its closest ally. It does not matter who occupies the Oval Office at present, the reaction would likely be the same. It is a nightmare for the US, it has a massive military presence in Qatar and proudly hails the Gulf state as an ally, if Qatar embarks on retribution, Donald Trump best start taking tightrope walking lessons. As for an expanding Eastern Europe problem, the US is bound by NATO’s Article 5 collective defence clause, that if one member is attacked it will be considered an attack against all members. Conservative as the reaction in oil prices have been so far, geopolitical anxiety just took a ratchet higher. If it were not for the lip service being paid by Washington to European officials as a unified sanctions package is sought against Russia, or the market narrative of an impending Crude glut, prices might have seen more of an upward tilt. However, as some reports suggest, the best Trump could offer is for the EU to impose 100 percent tariffs on China and India, in ‘do as I say, not what I do’ familiarity, it is almost criminal to give such supposed vacuous words a forum.

"Wait, baby wait"

The state of US oil production, at least on the surface, exudes a picture of health. Indeed, and according to the Energy Institute review of world energy, the US was easily the world’s top producer of crude achieving 13.194mbpd. This might just see a besting in 2025 for in last month’s Energy Information Administration report it predicted output to achieve 13.41mbpd. So much of the success has been obviously due to the prolific extraction in the shale regions, with modern technology offering greater longevity to what are considered mature wells. Such exploitation is being repeated in other sources considered at the point of equal maturity. Drilling in the deep waters of the Gulf of Mexico has found a new lease of life, with ‘lease’ being appropriate due to the willingness of a Trump government to grant many new licences in direct contrast with the previous administration. According to Energy Intelligence, Crude oil production from the US Gulf of Mexico is on the rise again, potentially putting the region on a path to match or even exceed its 2019 record of 1.9mbpd. EI goes on to say, “advances in technology and the standardisation and simplification of equipment have made new resources both more accessible and cheaper to produce,” and with a wealth of existing infrastructure to not only service new wells but deliver its plunder into the US oil mainframe, the US oil future as the number one global producer looks all but assured. 

But as with any financial enterprise or investment, there must always be the prospect of a decent return. Such returns when a commodity is involved is the achievement of the underlying price, and the state of flat price in global Crude markers is becoming more than problematic for producers. Returning to last month’s EIA offerings, the administration has not expanded on the current rosy picture by expecting the same production in 2026, it has begun to trim it. Output will drop by 200kbpd next year because the EIA and a succession of other notable commentators are trimming price forecasts. The American oil watchdog now expects Brent to average $51/barrel next year, down from the previous forecast of $58/barrel with much of the negative influence in the future being exerted by a fresh tranche of OPEC barrels after the cartel has completed a reversal of production cuts. 

Energy stocks in the S&P 500 are also performing badly when compared with the overall index gains, no matter how well managed a company may be or profits made. Performance is more often linked to underlying energy prices because the members that make up the S&P’s energy grouping consist of those companies which are heavily involved in processing and production. Energy stocks have exhibited significant volatility in recent years, according to US Wealth Bank, S&P 500 energy sector annual returns varied from -33.68 percent in 2020 to 65.72 percent in 2022, then to 5.7 percent in 2024. Given the probability of another year that sees oil prices devalue, the weighting of energy shares in the S&P 500 is likely to reduce, as it stands at only three percent at present, it affords an insight into how unattractive energy companies are to investors and why when the index goes off on one of its AI super charges, oil price reaction is muted.

According to Baker Hughes, the US oil rig count has fallen by 69 to 414 year-to-date. There is a wonderful quote on Reuters from the president of a Texas oil driller saying, “we’ve gone from ‘drill, baby drill’ to ‘wait, baby wait’ here in the Permian.” The current US Administration will indeed klaxon to all that still listen that it is very much pro-oil. But the advent of mercurial trade policies and tariffs have seen a succession of price rises in all material costings. Taking Steel as an example, the higher US tariffs on imports of the metal is adding to increased breakeven costs. Steel is used in drilling, pipelines and all manner of oil structures, if the issues around it is repeated with other material needs the price pressures on the US oil industry are exponentially increasing. Given the impending arrival of more OPEC barrels, and according to Reuters research, it is little wonder how the top US oil and gas producers will cut 2025 capital expenditures by $2 billion. Will a future eventuality be lower production giving a tighter US market and higher prices? Very possibly, but that is of no benefit to the hundreds of thousands of oil sector workers whose current employment is very much under threat.

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