Russia’s invasion of Ukraine has brought about a swift response from countries around the world who have introducedsanctions and have sought to cut ties with the country over the last two weeks. This includes reducing orcutting off Russian oil imports.
In light of these events, there has been renewed optimism for Wyoming’s oil industry,which has been rebounding from the lows of the pandemic, but still lags behind its pre-COVID production levels.
“We expect a positive increase in revenue for the state of Wyoming because of these oil prices,” said Kevin Hibbard, State Budget Director andWyoming Consensus Estimating Group(CREG) co-chairman. “Also, oil price increases have a significant impact on producers. It goes to say that increased oil prices will cost consumers more, as well as the state of Wyoming.”
He said this includes everything from consumer goods, food, fuel, and transportation. While the price ofoil has risen to over $100 a barrel, it’s too early to tell if it will lead to a boom in Wyoming. Prices also fluctuate from day-to-day, making it challenging to forecast potential revenue levels. But any increase, even if it’s just $5 per barrel, can have asizable impact on state revenues. This translates to just over $60 million in state revenues for each $5 per barrel increase.
“Prior to the administrative changes and COVID, there was a strong correlation between price and rig count,” Hibbard said. “Since then, there’s been a significant amount of uncertainty in the market where we no longer see that direct correlation. There’s a significant amount of uncertainty in oil production that is staving off new entry into the rig count.”
Hibbard said there are about 15 oil rigs currently operating in Wyoming,about half the number pre-pandemic. He said during the pandemic-induced downturn, oil production statewide was next to nothing. This was largely due to the large-scale travel restrictions and border shutdowns worldwide that significantly reduced the demand for oil.
As more countries cut off Russian oil imports, it’s too early to tell whether it will lead to a wide scale oil boom domestically.
“It really depends on how the duration of the entire price, the oil price will last,” said Dr. Wenlin Liu, Chief Economist for the Wyoming Economic Analysis Division. “If it lasts more than six months or more years, the longer it lasts, the producer probably will respond.”
Liu also said only about three percent of the U.S.’s oil imports come from Russia. This equates to approximately 200,000 barrels per day, out of about 6.5 million total barrels imported. He said that the longer the invasion lasts, there is a greater chance that producers will respond, leading to a potential increase in drilling and production.
This could also help offset some of the losses in the state’s energy industry during the pandemic. Liu said that approximately 5,000 energy jobs were lost during this time, and that only about 1,000 have been able to come back.
Hibbard said the situation is different in the European Union (EU), where around 25 percent of oil is imported from Russia. This doesn’t include sizable percentages of natural gas that Russia supplies to the EU, with some EU countries importing the majority of their gas from Russia. He said that while the U.S. cutting off Russian imports might not make a big difference to Russia, the impact from its European neighbors would be much more significant.