As contradicting forecasts regarding US oil inventories from Bloomberg and Genscape left markets teetering, there is clearly little doubt in the value of New Mexico’s drilling potential. Bids in a federal government auction, conducted by the Bureau of Land Management late last week, reached a record high of $95,001 per acre, toppling the previous record of $40,001 in December of 2017, serving as a testament to the mineral-rich lands of the Permian Basin running through eastern New Mexico and a significant portion of Texas.
While investor confidence can be attributed to the oil-density of the region and the increasing productivity of US drilling operations, it would be remiss to not consider the effects of US sanctions on Iran’s energy industry. As November approaches, and the threat of sanctions with it, oil prices may approach levels not seen since 2014. Iran is considered one of the world’s largest oil exporters, and according to Fereidun Fesharaki, founder and chairman of consultancy FACTS Global Energy, cutting them off entirely could result in prices surpassing $100 per barrel.
Investors in the energy sector are the clear winners in this scenario, but it would be logical to wonder how long inventories could last, considering imports from a major supplier could be potentially stunted. Fortunately, this has been addressed by way of the President urging Saudis to lift production to keep prices in check, and according to government data, Saudi oil shipments to the US are up about 250,000 bpd (barrels per day) since May. What can one take away from all of this? Oil prices are primed to increase, and they’re prepared to stay there.