Rumors of an Iran nuclear deal dominated energy headlines this week. That’s hardly surprising. Nor is the selling it spurred of oil and energy stocks. But as we’ve pointed out, even if that country’s oil does return to world markets, it would have little real impact on the global supply and demand balance–especially at a time when US shale producers are staying conservative and post-pandemic demand is surging.
That’s why the more important news by far for US energy investors was a ruling by a federal judge in Louisiana, which blocked the Biden Administration’s “pause” on issuing new oil and gas drilling leases on federal lands.
The Interior Department says it will comply with the ruling, which applies to both onshore and offshore activity. We think it’s unlikely the judge’s decision in favor of the 13 states that sued will end the dispute.
For one thing, it’s a preliminary injunction rather than a final court ruling. Also, Interior hasn’t set a date for when auctions will resume. And its report to be released this summer is certain to include recommendations for new drilling regulations as well as increased producer fees.
But for the first time, a federal court has ruled prospective economic harm from a US government action restricting oil and gas industry activity is enough to merit a full review. And that has major potential implications up and down the energy value chain, including ongoing litigation to shut down the Dakota Access Pipeline and Line 5 Pipeline.
Despite this month’s surge in benchmark WTI Cushing crude oil prices to over $70 a barrel, we see few signs producers are getting ready to ramp up output. Consequently, resuming new drilling permits on federal lands isn’t likely to have much if any immediate impact on supply or prices.
Nor is the judge’s decision likely to ignite a boom in pipeline construction. But a favorable Minnesota Appeals Court ruling this month in what was considered a toss-up case has greatly improved the odds Enbridge Inc’s (TSX: ENB, NYSE: ENB) Line 3 expansion will enter service on schedule later this year, despite opponents’ vows to take the case to the state Supreme Court.
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Elliott and Roger on Oct. 28, 2021
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