Ample US oil output dampened the price impact of the recent Iran conflict and has given US President Donald Trump leeway to make foreign policy decisions that would not have been possible in the past, former Energy Secretary Dan Brouillette said.

“The events that we just saw in Iran, I think, prove that point,” said Brouillette, who was energy secretary in Trump’s first term. “We saw some small market moves, but you could argue that had more to do with psychology than actual economics,” he said at an event hosted by the US Energy Association.

In his first administration, US oil supplies gave Trump the ability to ask Russia and Saudi Arabia to cut oil output during the pandemic, when low prices could have pushed out US producers and limited the ability of the US to be a swing player in the marketplace, Brouillette said.
“I watched President Trump negotiate with President [Vladimir] Putin and with the King of Saudi Arabia in a way that I don’t think any other president could have done,” Brouillette said. “It’s just the simple fact that he had leverage in the conversation because of that strong energy production.”

Oil production in the Western Hemisphere, not just the US, plays a role in moderating oil prices during conflicts, said Dan Byers, vice president of policy at the US Chamber of Commerce’s Global Energy Institute.

After the strikes on Saudi Arabia’s Abqaiq crude processing facility in 2019, the spike in oil prices was short-lived, in part because of quick repairs but more so due to rising shale production, Byers said.
Western Hemisphere production

“Western Hemisphere production all around the world now has grown, not just in the US. Canada has grown, we now see a lot of growth in Brazil and Guyana, etc., and so that’s really had a calming effect on markets,” Byers said.

There have been three or four big things that the oil market has worried about in recent years, said Mason Hamilton, vice president of economics and research at the American Petroleum Institute.

Those scenarios include a big supply outage like what occurred at Abqaiq, a big demand collapse like what happened during the pandemic, and what might happen if Israel went after Iran’s nuclear program, Hamilton said.

“Well, we got that answer, and it was a $10 bump,” he said, referring to the oil price impact of the recent strikes on Iran. “And that is because underneath it all is the stability and constants of the US oil and gas industry, there with flexible contracts, being able to do deals, invest, produce, move and export.”

There is still one wild card that could have a big oil market impact, and that would be a strike on Iran’s Kharg Island oil export facility, Hamilton said. That kind of strike could be enough to motivate Iran to try to close the Strait of Hormuz, he said.

“The Hormuz thing, Iran doing it would be its last gasp action,” Hamilton said. “So I do not think that’s an escalatory thing that’s on the table. I’d say the only thing that would really, really escalate it is if something happened to Kharg Island at this point.”
Source: Platts