Hard as It Is, Frackers Should Ignore Iran
Higher oil prices aren’t an excuse to revert to bad old habits.
Protesters hold pictures of Iranian commander Qasem Soleimani during a demonstration outside the U.S. consulate in Istanbul on January 5, 2020, two days after top Iranian commander Qasem Soleimani was killed by a U.S. drone strike.
Photographer: YASIN AKGUL/AFP/Getty Images
Oil has begun pricing in the Middle East’s next explosion (albeit arguably not enough). Even as restraints pop there, though, discipline appears to be holding up in one crucial corner farther away: the shale patch.
The prospect of a conflict-inspired jump in oil prices is, in purely economic terms, like a glass of water in the desert for U.S. energy stocks. The sector closed 2019 as the worst performer of the year and the decade; it has begun 2020 in the green, at least. The short story is that investors have wised up to the benefits of higher oil prices flowing disproportionately to insiders and (by way of drilling budgets) contractors. Hence, exploration and production companies have tried to reset the relationship with investors on a platform of disciplined spending, lower leverage and higher returns. Higher oil prices provide temptation to backslide on this.