The eyes of many in Texas’ energy industry are focused on Washington today as Ukrainian President Volodymr Zelesnkyy and European leaders gather at the White House to talk about the chances of working out a peace deal with Russia.
This meeting coming in the immediate wake of a closely watched summit on Friday in Alaska between Russia’s President Vladimir Putin and U.S. President Donald Trump, who’s trying to broker and end to the Ukraine war.
So what does all this have to do with Texas and energy? Matt Smith, global commodities expert and lead oil analyst for the Americas at Kepler, joined the Standard to help break it down..
This transcript has been edited lightly for clarity:
Texas Standard: Let’s talk about these latest developments after President Trump met President Putin on Friday in Alaska. There’s been a lot of talk that there wasn’t much accomplished. Then again, we do have this meeting that’s happening today. What did you see as developments out of that Alaska meeting?
Matt Smith: Well, it appears Putin has agreed to security guarantees which would see Europe and the U.S. protect Ukraine from further aggression. That’s why you have European leaders coming across to the White House today.
These security agreements or guarantees would be put in place to essentially halt or block any further advances by Russia into Ukrainian territory in the future. So that’s a positive thing, right? Really good thing for Ukraine.
That said, there has to be something in exchange. Putin is pushing for Zelesnkyy and Ukraine to surrender some territory – the Donbas region – would be essentially ceding its best defensive positions, an area of strategic importance there.
It’s tough on that side of things, whether he’ll be willing to give that up. Also, Trump has ruled out Ukraine joining NATO. Also Ukraine reclaiming Crimea. Now, Crimea was illegally annexed from Ukraine back in 2014 by Russia, and so there’s going to be some give and take here if there’s going to an agreement made.
What happens today? What comes next, as you see?
Zelesnkyy is going to be sitting down with Trump. The European leaders, it’s impressive and it’s unprecedented really to see them come across to the White House with such short notice.
But it’s because they want a deal struck here, but it also seems as if they want to back up Zelesnkyy, give him some support. You’ve got the British prime minister, the German, the French, the Italian, and so there is that impetus from them.
But it’s difficult not to be skeptical as well, right, because even just overnight Russia has launched drones and missiles at Ukraine, seemingly trying to put pressure on them. And so what’s going to come out of today is really how much is Zelesnkyy and Ukraine willing to give up here to reach some kind of truce.
Okay, as you read the tea leaves looking at the oil prices, the markets, what is that telling you about the way that the rest of the world sees what’s going to happen here?
Yeah, not a lot. So the price movement has been fairly muted as markets opened last night, and so we opened a little lower, moved a little higher, and so really it’s not telling us too much.
And that makes sense, right, because there’s still a lot of unknowns here. We really don’t know what’s going to happen over the next day, three days, five days, you know, so prices are going to kind of plain wait and see rather than anything else.
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I think there’s been a projection, at least short-term projection, that prices could start to move lower, am I right?
Yeah, so last week, we had a number of key monthly reports out. So we had one from the [International Energy Agency; we have one from [Energy Information Administration], who is essentially the US Department of Energy.
And they’re calling for Brent crude prices, which is that global benchmark is just a few dollars higher than the U.S. benchmark, for that price to drop from about $65 now, close to $50 for next year.
And so they’re seeing real oversupply hitting the market here. So they see a massive move lower in the grand scheme of things for all prices going forward here.
What does that mean for production? I would guess less production, prices at the pump dropping as well, good for consumer, bad for producers?
Exactly. Yeah. So dropping to low 50s on a Brent basis there per barrel of oil equates to WTI breaking below $50 a barrel. And so that would definitely cause U.S. production to contract.
We’re already seeing those rigs being laid down. We talked about that last time. So that would only be exacerbated or accelerated.
But to your point, prices at the pump, a drop of that much, if you think the rule of thumb of a $10 drop in oil equates to a 25-cent drop in prices of the pump, Texas prices could be down to $2.35 a gallon for next year. Yeah, so it’s a big move lower.
