In the aftermath of drone strikes on an oil processing plant in Saudi Arabia over the weekend, North Dakota will simultaneously feel ripple effects and play a role in preventing the incident from sending even greater shock waves through global oil markets.
Drivers here and across the country will pay more for gasoline in the coming days due to a spike in crude oil prices, according to experts. The drone attacks knocked 5.7 million barrels per day of Saudi Arabia’s oil output offline, which accounts for about 5% of the world’s oil supply.
That’s a significant amount, equal to shutting down all production in the Bakken oil fields four times over. North Dakota produces 1.44 million barrels of oil per day, according to the latest figures released Monday by the state Oil and Gas Division.
The new data reflects oil production in July, and it marks a record for the state. Climbing North Dakota production follows the trajectory of shale oil development throughout the United States, which has skyrocketed over the past decade amid advancements in horizontal drilling and fracking technology.
“We would be talking about substantially different circumstances had America, led by the Bakken, not made itself a world leader,” said Ron Ness, president of the North Dakota Petroleum Council. “We are substantially mitigating the impacts of a huge world event like this.”
As president of Heartland Investor Services, Eugene Graner watches oil markets closely from his office in Bismarck.
Robust U.S. shale development has helped hold world oil prices in check, he said.
“We could have seen oil probably go to $70 per barrel or more if it weren’t for this,” he said.
West Texas Intermediate, the U.S. crude benchmark, climbed nearly 15% Monday to settle at $62.90.
Graner added that the attacks come amid hurricane season, and a large storm or additional drone strikes in the days or weeks ahead could cause more price volatility.
Several efforts are underway to offset the drop in Saudi Arabia’s oil output. Graner pointed to the kingdom’s own announcement that it would release crude in storage.
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President Donald Trump said Sunday that, if needed, the United States would tap into oil stored in caverns in Louisiana and Texas known as the Strategic Petroleum Reserve. That helped to put a cap on the jump in oil prices, Graner said.
It’s unclear what the price increase will mean for North Dakota’s oil fields. Higher prices tend to lead to more oil production.
Historically, for every $5 increase, five new rigs have begun drilling for oil in the state, said Justin Kringstad, director of the North Dakota Pipeline Authority.
“It has an impact,” he said.
But a lot of factors are at play. For one, planning, permitting and drilling an oil well takes time. Winter is coming, and harsh weather can slow oilfield activity, Kringstad said.
Oil companies also are flaring a lot of natural gas amid the record oil production. The industry is working to capture more of the gas by building pipelines and processing capacity, said Ness, with the Petroleum Council. Statewide, 23% of gas produced is flared, prompting some companies to restrict production to comply with the state’s flaring target, which is currently 12%.
The extent of damage to the Saudi oil facility is not yet clear, nor is the timeline for when the nation will be able to ramp its oil output back up to full capacity. The plant hit in the drone attack separates gas from oil, and Trump has suggested that Iran is responsible.
Meanwhile, drivers could feel a pinch at the pump as soon as this week. Gene LaDoucer, North Dakota spokesman for AAA, said gasoline prices could increase by as much as 25 cents per gallon over the next month, but the actual amount and duration will depend on whether Saudi Arabia can quickly bring its oil output back up.
The motor club association tracks fuel prices and reported that gasoline on Monday cost an average of $2.55 per gallon in Bismarck.
The price had been dropping over the summer months, thanks in part to rising U.S. oil production, LaDoucer said.
“There’s plenty of crude oil in storage and being produced,” he said. “We’re not totally reliant on imports any longer.”