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Energy Executives See Oil Prices Going Higher

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Executives at some of the largest oil producers are predicting that already soaring crude prices could fly even higher this summer as European sanctions take a bigger bite out of Russian supply and global demand continues to surge.

Hess CEO John Hess, speaking during the Bernstein Strategic Decisions Conference on Thursday, said that crude prices could rise above $120 per barrel following the EU's decision to expand its ban on Russian oil imports.

Hess added that the recent agreement by the Opec-plus coalition to increase output in July and August amounts to “a drop in the bucket relative to what we may lose from Russia."

The Next 90 Days

Chevron CEO Mike Wirth said Wednesday that while it was difficult to predict where oil prices would go, all signs are pointing higher in the near term.

“It's hard to find anything that suggests [oil] prices or margins are headed lower over the next 90 days, if we're going to talk about the summer season,” said Wirth. "It's pretty easy to find a lot of factors that suggest an upward press on those, whether you're talking on the demand side or on the supply side."

Wirth said that "the mitigating factor" would be oil demand. "That’s really the one thing that could turn ... a reduction in demand, but the demand drivers right now tend to still be relatively strong.”

On top of geopolitical issues, US producers have also contended with mounting inflation and supply chain issues that, along with pressure from investors to keep capital spending in line, have kept a lid on production growth.

EOG Resources CEO Ezra Yacob largely pinned sluggish output growth on supply chain bottlenecks.

“Demand has snapped back quite a bit faster than I think anyone really anticipated” after the Covid-19 pandemic, Yacob said. “And you're seeing supply coming back quite a bit slower, really on the backs of supply chain issues that are causing ripple effects throughout the broader market and the broader economy.”

Discipline

During previous commodity booms, operators took advantage of higher crude and natural gas prices by spending more and growing production. However, Yacob said that this time around he expects companies to stick to their promises to investors to rein in spending and ramp up returns.

“Outside of just the supply chain issues, that's going to be a big governor for the public companies,” said Yacob.

Chevron expects to grow its Permian Basin production by 15% this year, but has said it is able to accomplish that without raising its annual capex budget. Wirth reiterated the supermajor's plans to keep its spending in line.

“We don't predicate our plan on high prices,” Wirth said at the conference. “We prepare for low prices, and then our shareholders.”

Hess said more investment would be needed to shore up supply in the future.

“At the end of the day, prices are where they are right now, and I'd say they're going to be higher during the second half of the year," said Hess. "And the only way you're going to balance the market is investment that takes a longer time or demand destruction to try to make the market balance."

Topics:
Corporate Strategy , Capital Spending, Majors, Independent E&Ps, Shale, Oil Demand, Oil Supply, Oil Prices
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