On June 9, 2024, a long-standing petrodollar deal between the United States and Saudi Arabia expired. As of now, Saudi Arabia shows no plans of renewing the petrodollar system agreement, which was reported to be signed in 1974. The bilateral agreement permitted the two nations to price and trade oil in US dollars and resulted in a major milestone for the US and its global dominance and growth.
The 50-year agreement brought significant geopolitical and economic implications for the U.S. and was an attempt to solidify an economic relationship with Middle Eastern nations. Saudi Arabia’s forgoing the dollar may weaken the relationship between the two nations, especially if it decides to join the BRICS nations to create an economic bloc that serves as an alternative to U.S. interests.
According to Vijay Marolia, Managing Partner and Chief Investment Officer of Regal Point Capital, rise of the new BRICS currency could be a tipping point for the US dollar.
“This is definitely bearish for the US dollar in the long term—the petro-dollar contract added a lot of demand for the dollar globally and this support will gradually decrease. Unfortunately for us, that means higher energy prices,” said Marolia.
On the national front, Marolia felt this year’s elections will play a part in the industry’s projections.
“Nationally, all bets are off until we see who wins the election, but I do think that US production will continue to grow, especially when we see oil prices rally.”
Saudi Arabia’s BRIC’s Invitation
The admission of Iran and Saudi Arabia to BRICS could be a real game-changer when it comes to the energy industry. According to a Forbes article, the expansion of the bloc could put an end to the petrodollar, which has maintained the US dollar as a leader in global reserve currency.
Saudi Arabia did not join BRICS as planned at the start of 2024, but the country’s representatives say they are still considering membership. Experts have varying opinions on the impact that Saudi Arabia’s BRICS membership would have on the U.S. dollar, as well as the gas and oil industry as a whole. While the bloc expansion could eventually affect the United States dollar, its oil and energy production levels are at an all-time high.
“The oil and gas industry in the USA is thriving. We have had record production brought on by elevated demand. There have been well over $300 billion in mergers and acquisitions in the last 12 months, and 150,000,000 people are born each year. All energy consumption is growing, alternative energy and oil and gas because our population continues to grow rapidly, and other influences also drive more power consumption like AI and Data centers and machine learning at scale,”– said Matt Willer, Managing Director and Partner at Phoenix Capital Group Holdings, LLC.
According to Willer, along with growth, the industry is likely to see more consolidation.
“We aren’t making more acreage, we are making more people, and the consolidation within the industry means the inventory is in fewer hands which may well lead to a more orderly market for years to come, and barriers to entry for the smaller entrants. The USA oil and gas industry is currently thriving, and frankly, any transition of this size takes a long time, and requires many inputs, which is why all energy is important for years to come if we want to continue to evolve.”
Texas Oil Production Remains Strong
According to the Energy Information Administration, Texas has outpaced the rest of the nation in oil and gas extraction and refining. In December, Forbes reported that the U.S. set a new annual oil production record based on federal data.
In a report released June 11, the federal agency suggested that crude oil production in the U.S. will set records in 2024 and 2025 due to increased industry efficiency. However, this growth will be hindered slightly by fewer active drilling rigs.
Texas is by far the largest oil-producing state in the United States. In 2023, the state produced over two billion barrels. A report from the Texas Oil and Gas Association shows that the state saw record levels of crude oil production even following the federal government’s introduction of new environmental regulations that industry leaders said could hinder production.
Texas’ oil and natural gas industry broke new production records in May, with the production of oil, natural gas, and natural gas liquids (NGLs), refinery activity, and exports reaching new record highs, according to a new analysis published by the Texas Oil & Gas Association. The industry produced a record-high 5.7 million barrels per day (mb/d) of crude oil and shows no sign of slowing, with equally strong projections for June.
According to TXOGA estimates, in the first half of 2024, Texas produced an estimated 43% of all domestically produced crude oil and more than 28% of all domestic natural gas marketed production.
