The fuel industry relies on a global market, making it vulnerable to geopolitical risks that can significantly impact the availability, pricing, and distribution of fuel. Current unrest in the Middle East and Russia, coupled with unknowns in Venezuela, all have implications for the fuel market.
“Political risk issues this year will also include the political risk issues of public policy. One of those that deserves mention is if a new presidential administration comes in,” said Greg Priddy, a senior fellow for the Middle East at the Center for the National Interest and expert on political risk and global energy markets. “Will you have changes in U.S. regulatory structure that mean the U.S. produces more or less going forward?”
Priddy, who will be speaking at NATSO’s Fast Forward Focus, said the market can feel the effects of supply getting cut off, which can lead to oil price fluctuations and supply shortages, or supply increasing suddenly.
Watching the Global Market
Tensions in the Middle East bring a wide array of unknowns. “There are pieces of critical infrastructure in the Middle East that Iran can threaten, and those are very hard to replace in the short term,” Priddy explained.
He added that a big event, such as a war with Iran, that destroyed Saudi infrastructure, would spur U.S. production. “You’d have every rig in North America drilling again. They’d hire crews and train people. You’d have a response in six months,” Priddy said.
In addition, Iran has been exceeding its production quotas. “There is a strong incentive to do that right now,” Priddy said. “The U.S. has been tacitly winking at their oil volume going up. The White House would deny it, but we’ve all seen the numbers.”
Priddy said a Trump Administration might enforce those sanctions more tightly. “It remains to be seen what will happen,” he said.
Looking at Russia and Beyond
The ongoing war in Russia and the Ukraine has not significantly affected production volumes. “What Russia was selling to Europe is going elsewhere,” Priddy said. “That has not been a big upward price driver.”
Hungary and Slovakia have refineries that run specifically off of Russian oil and the only way to get the oil to them is the pipeline from Russia. That pipeline is exempt and is still operating. “The effect of Russia and Ukraine will be backward-looking and will focus on how it reordered the world market,” Priddy said.
Awaiting the Presidential Election
The U.S. election could bring regulatory changes that alter production, but Priddy doesn’t expect them to have a material influence. “The private sector makes the decision on drilling. The Biden Administration hasn’t leased more on federal lands, but that wouldn’t have made much more of a difference,” Priddy said.
Bidding on public land makes up just 3% of production. “It is a great headline, but it doesn’t matter that much,” Priddy said.
Eying OPEC
OPEC (Organization of the Petroleum Exporting Countries) plays a significant role in influencing global oil prices due to its ability to coordinate oil production levels among member countries. Priddy said OPEC is looking at unwinding pricing constraints next year.
Priddy expects oil demand to continue growing until the 2030s. “You have Guyana and Brazil that are coming along and taking that volume,” Priddy said.
He added that some countries with restrained output, such as the Emirates, will want to bring that on because they have unused capacity that they’ve invested in and don’t want it to sit idle.
Digging Deeper
Learn more from Priddy during the NATSO Foundation’s Fast Forward Focus. Registration is open.
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