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Following the invasion of Ukraine, oil industry leaders have called on Wall Street to refrain from restricting investment in new crude supply, warning that “chaos” and “bedlam” threaten to overwhelm the energy markets. They are concerned that the west will prohibit Russia from exporting oil due to the invasion.
The rise in the international oil price to $139 a barrel on Monday has generated concerns that the rally may hurt the global economy. At the CERAWeek conference in Houston, oil executives blamed their investors for at least a portion of the problem. The oil industry has received advice from investors not to invest as much as possible. “This is a catastrophe, and we should be spending more,” John Hess, chief executive of Hess Corp, a major US shale oil producer, said in a recent interview. The result of five years of under-investment is that we are now reaping the consequences.
Oil corporations have been under pressure from Wall Street in recent years because of a decade of debt-fueled drilling and supply expansion. As a result, oil companies have been required to decrease expenditure on new crude production while using the revenue to pay dividends and reduce debt. Although the plan has helped operators strengthen their financial sheets, the pace of expansion in oil production has been slow. Even before the Ukraine crisis, there had been an increase in post-pandemic demand that had resulted in a spike in prices that had established new records.
At one point on Monday, the international benchmark Brent crude oil soared 18 percent to over $140 a barrel as markets responded to reports that the United States was in “active conversations” with its European allies regarding penalties against Russian oil shipments.
As a result of the price rise, oil is now within around 5% of its all-time high, reached in July 2008, just before the global financial crisis.