US shale producers not yet tempted by $100 oil

0:28Today's markets move fast.

0:33Good morning from the Financial Times. Today is Monday, March 16th, and this is your FT News Briefing. U.S. President Donald Trump issues a warning to NATO, and America's shale producers are not rushing to boost output, even as oil continues to surge. Plus, we got a lot of central bank decisions coming up this week, but don't expect policymakers to brush off the effects of higher energy prices. I think they're just very burned by the experience of talking about transitory, inflationary consequences back in 21-22, given it was anything but transitory. I'm Victoria Craig, and here's the news you need to start your day.

1:23In an interview with the FT late Sunday, President Trump said NATO will face a, quote, very bad future if U.S. allies fail to help open the Strait of Hormuz. It's a key waterway that before the war in Iran began, allowed about a fifth of the world's oil to pass through. The president also said he could delay a summit with China's President Xi Jinping later this month as he urges Beijing to help open the shipping route. President Trump's warning comes as European foreign ministers are due to gather in Brussels today to discuss ways they can help restart shipments through the strait. The meeting comes as the conflict enters its third week and as oil prices continue to trade near multi-year highs due to Iran's closure of the strait.

2:04A French diplomat told the FT the country is working with partners on a joint naval mission to secure the strait and, quote, ensure the safe passage of tankers there. America's Energy Secretary, meanwhile, said on Sunday morning that the war will likely end in a few more weeks, and that reopening the Strait of Hormuz will be a, quote, increasing focus for the U.S. military.

2:30Well, with vital oil supplies still, for the most part, not allowed to transit through the Strait of Hormuz, it might seem that America's shale producers would be in a good position to offer more crude supply to the world. That's because historically, when oil prices rise, the shale industry revs up production in one of the most prolific oil fields in the world. But that is not happening this time. Stephanie Findley is our newly minted Houston correspondent, and she spent the past week in the Texas oil patch finding out why that is. She joins me now to discuss. Hi, Stephanie. Hi, Victoria. So what is the mood like among these Midland Texas oil producers right now?

3:09It's not as optimistic as you might expect. I think of the producers who I talk to, they want to see the price of oil remaining higher for longer. And in order for that to happen, the supply shortage needs to be more structural. So while they see the spike of oil now, it's far too early to celebrate. Of the people I spoke to, they were happy for oil to be around 75, 80. 100 is just too disruptive. Yeah, oil's been hovering around$100 a barrel for the past week. But Stephanie, why are these producers not racing to ramp up production? What is the equation for them to be able to make that call? For the shale producers, it takes a lot of money and a lot of time for a well to go from start to end.

4:02You have to find it, you have to drill it, you have to frack it, and all of that takes months. It also takes$11 million or a little bit less or a little bit more. So it's not exactly something which you can just turn on the tap, so to speak. For the smaller producers, they don't really have a ton of drilled but uncompleted wells sitting around. For the bigger companies, they may be able to ramp up production a little bit faster, but this is a complicated, long, expensive process. Not everyone is pessimistic about what's happening. Give us a sense of that. Sure. I mean, some people are trying to read the tea leaves as best they can, trying to project how this conflict is going to play out.

4:49I spoke to one independent producer, Steve Perret, who said that he accelerated plans for negotiations for leases to drill. Before we were in a wait and see mode, we were planning to bring them on next year. Who knows what the price of crude will be then? Yeah, we're deciding to go for it just because the outlook is more favorable. It's kind of like we've gone from risk off to risk on. As a mindset, I don't think I'm alone in that. So not everyone is cautious, and they're watching and waiting at this point. Now, there's a little bit of politics at play in all of this as well. This region in Texas was one that really supported and still supports, to a certain extent, President Trump.

5:29What are their views of him now, especially months away from the November midterm elections? There's a lot of support for Trump. A lot of people cheered what he's doing in Iran. However, his focus on$50 a barrel oil and cheap gas at the pump has burned the industry. Yeah, one person you spoke to, David Arrington, who's another independent oilman, had this to say about that. All the people who support Trump are capitalists. And all the oil people I know are capitalists. And we want to support him and all that. But at the same time, he's working against us because he wants to lower the price of oil so it's cheap gasoline forever.

6:11So that's a real delicate dance. I mean, it's surprised some people in the region who thought with the appointment of Chris Wright, Energy Secretary, who was an oil and gas executive of a company in the region, would lead to more favorable policies. So as they are considering the impact from the Iran conflict, they're also looking forward in a couple of months to the midterms. And they know from past experience that the price of oil may go down, especially if Trump wants the price of oil to go down. And that's a big part of their calculus when they're looking at whether or not to ramp up production.

6:49A really fascinating story. I'm sure it was a great one to report. Stephanie Finley, our Houston correspondent. Thanks so much for your time. Thanks so much.

7:01It doesn't happen often, but we've got a calendar stuffed with central bank meetings this week, eight in total. As we've been discussing today, the war in Iran has sent global oil prices surging, and that means there will be a tremendous focus on how policymakers around the world react to this new inflationary pressure. Who better then to chat with about this and what we're expecting than our economics editor, Sam Fleming. Hi, Sam. Hi, Victoria. So we've seen quite a readjustment in what the markets are expecting these central banks to do this week. Just walk me through some of that. That's right.

7:36The reaction has very much come off the movements in the oil price and natural gas prices. investors have really dialed back their expectations for rate cuts and indeed started to price tentatively in some cases higher interest rates so with the european central bank for example the next move is now seen as being up although obviously investors would have conflicting views as to how soon that might happen investors have sharply dialed back their expectations for federal reserve interest rate cuts whereas the bank of england which this week is going into a meeting where before the hostilities began, there was an expectation it would produce rates by another quarter point.

8:13That has now been firmly wiped off. So all kinds of changes in direction then. I think the unanswerable question really is how long this war is going to last. But really, it's also a critical answer that these central banks need. So how can they game out monetary policy without that clarity? Well, the answer is that they are unlikely to offer greater certainty than they can realistically provide. And so I would expect that they start to pull back in terms of offering guidance on the next move and instead talk a lot more in terms of watching and waiting, careful monitoring, being committed to their inflation targets.

8:52And you could start to hear a bit more in terms of scenarios as well. Bank of England being one of the central banks that talks a lot about scenarios, but you hear them sometimes from the ECB as well. If, say, the oil price remained at current levels for X months, then this might be the implication for our forecast. If, on the other hand, energy prices reversed very rapidly, there might be a different outcome in terms of our forecast. But they can't offer central projections because there's just zero certainty on that front right now. This has echoes of when Russia invaded Ukraine in 2022 and the impact that that had on central bank decision making then.

9:30We were coming out of the pandemic and so everyone thought that the inflation shock was a transitory one. And so do you think this shock will be seen as transitory or one that requires more immediate longer term action? I think it's highly unlikely you're going to hear central banks talking a lot about transitory right now. I think they're just very burned by the experience of talking about transitory, inflationary consequences back in 2021-22, given it was anything but transitory and we had a major inflation, which in some jurisdictions took CPI inflation up into double-digit levels. So it'll be much more about watching and waiting.

10:07Are there some factors that are different this time around? In some instances, are we better prepared to deal with an unexpected shock like this? Are there lessons that we learned, central bankers learned, from 2022? Well, there are certainly parallels in the form of the energy shock because that energy shock was part of what lifted inflation off back then. But there are big differences as well. Fiscal policy has been reined in since then. We're not in a situation where economies were being released from COVID lockdowns, which was part of what propelled inflation as consumer spending was unleashed after the lockdowns.

10:41Policy rates are a lot higher now than they were back then when they were near zero or even sub-zero levels. And so the situation is different in many ways. But there is one area where central bankers will be particularly concerned, and that's in terms of inflation expectations. If people see soaring prices and immediately remember the near double-digit inflation rates we had very recently, and that propels inflation now further. So that's one of the reasons we can expect central bankers to strike a pretty firm note when it comes to their determination to stick to their 2 % targets. Well, with eight meetings coming up this week, I know there will be plenty of central bank speak for you to digest.

11:19Sam Fleming is our economics editor. Thanks so much for your time, Sam. Thank you.

11:29I've got one more story to tell you about before we go. Wealthy investors have tried to withdraw more than$10 billion in the first quarter from some of the world's largest private credit funds. That's prompting investment managers to limit redemptions, and it's threatening to stall an important growth source for Wall Street. Debt funds run by firms including Blackstone, BlackRock, and Morgan Stanley have agreed to honor about 70 percent of the requests they've received, according to the FT's calculations. The pullback follows years of rapid growth as affluent individuals poured hundreds of billions of dollars into private credit funds that lend directly to companies.

12:07But analysts say those investors can be quick to withdraw funds during periods of market volatility. Shares of major private capital groups, including Blackstone, KKR, and Apollo, have fallen sharply this year, leaving investors to question whether the sector can maintain the rapid growth that fueled its rise over the past decade. You can read more on the ructions in private credit and all of the other stories in today's podcast for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news. You