Middle East tensions raising the stakes for Texas oil companies

Chaos has reigned in the Middle East since October 7th, 2023, the day Hamas decided to launch a full-scale attack on Israel. Since then, thousands of people have been killed, including American troops, and the overall feeling for world security has dropped significantly. Those fears of a larger Middle East war have naturally dripped over to the oil sector now.

We have already seen some oil impacts due to the conflict. Houthi Rebels from Yemen have harassed and targeted ships in the Red Sea, including at BP oil tankers. This has led to ships taking much longer routes, causing delays and increased costs for companies.

Thanks to President Biden's raiding of the strategic reserves to save face, the United States has virtually nothing left in the tank. CEO of King Operating Corporation Jay Young says that we are actually producing more oil in America than ever right now, but there is a catch.

"We are not producing the right kind of oil for our refineries...so we are still having to import foreign oil. Which, of course, comes from the Middle East," he says. "We are producing 13 million barrels a day...but we export a lot of that because we do not need it."

Operations costs are also increasing for these companies, as their oil tankers have to take routes around Africa to avoid disruptive actors at sea. Shipping traffic in the Suez Canal is at a two-year low, with the biggest decline being tanker traffic.

While inconveniencing oil tanker traffic may not seem like a massive momentum shifter, it really is at this stage.

"Any disruption in the world, I mean any disruption...even one to two million barrels...can send oil prices through the roof," he says.

Meanwhile, OPEC has been cutting production for a while, and they continue tightening their belt as the year goes on. That is becoming a problem all on its own and gives the U.S. fewer buying options.

"As you see them start tightening up their supplies...we will see oil prices either continue to go up, or continue to not go down," he says.

But as oil prices go up, that means gas price increases usually accompany that, which we could see at the height of vacation season.

"Right when summertime picks up and people want to drive...it is going to cost more money this year," says Young.

OPEC has begun big cuts to start 2024 as well, slumping by 350,000 barrels a day in the month of January.