HOUSTON, March 10 - A jump in energy prices tied to the U.S.-Israel war with Iran will not, on its own, produce additional U.S. oil output without the kind of market predictability needed to justify more drilling, Andy Hendricks, CEO of oilfield services firm Patterson-UTI, said on Tuesday.
Oil prices have been volatile since the end of February after Iran shut the Strait of Hormuz, a key trade route, prompting production cuts from major Middle East producers. U.S. crude futures spiked to $119 a barrel at the start of the week, the highest level since August 2022. Prices moved within a $35.80 range during Monday's trading session. On Tuesday, futures settled at $83.45 a barrel, down $11.32, as U.S. President Donald Trump predicted de-escalation.
Hendricks pointed to the timing of budget decisions as a constraint on immediate production responses. "The challenge is in December, when we and the oil and gas companies we work for were all working on our budgets, oil was in the $50s," he said in an interview, adding that it can take more than half a year to bring wells online.
He underscored the uncertainty companies face about forward oil prices. "What is the true price of oil going to be in six to nine months?" he asked, noting that that uncertainty influences capital allocation and operational planning.
U.S. production levels are already near record highs. According to the U.S. Energy Information Administration, total U.S. oil production reached 13.7 million barrels per day last month. Production in the Permian Basin was reported at 6.59 million bpd, down from a record 6.74 million bpd hit last year.
Hendricks said the direction of U.S. output will hinge on how quickly conditions around Iran close and trade through the Strait of Hormuz return to normal. He warned of a specific downside risk in the Permian. "I think the risk is that Permian oil production starts to slow this year. If it does slow this year that will probably cause prices to move up and then that will cause the industry to start to pick up activity," he said.
Implications and context
- Near-term price spikes are not the same as the market predictability companies need to increase drilling and bring new wells online.
- Budget decisions made when oil was in the $50s constrain how quickly operators can expand activity in response to later price rises.
- The timing of normalization in the Strait of Hormuz is a central factor shaping U.S. production trajectories.