Oil & Gas E&P surges as Iraq output plunges 60%
US shale producers poised to benefit from supply disruption with Brent threatening $100 barrier
US oil and gas exploration and production companies surged on Monday as Iraq's crude output plunged nearly 60% and the Strait of Hormuz remained effectively blocked, creating a supply gap that could push Brent crude above $100 per barrel.
Iraqi officials confirmed production cuts of approximately 1.5 million barrels per day, with the country's largest field at Rumaila alone losing 700,000 bpd of output. The shutdown of West Qurna 2 field accounted for an additional 460,000 bpd reduction. More ominously, Iraqi authorities warned that cuts could expand to more than 3 million bpd if the Strait of Hormuz blockage persists, effectively halting the country's ability to export crude through southern ports.
The disruptions stem from the ongoing Iran-Israel conflict, which has led insurers to withdraw coverage for tankers transiting the strategic waterway. The Strait of Hormuz handles roughly 15% of global oil supply and 20% of liquefied natural gas shipments, making it one of the world's most critical energy chokepoints.
Brent crude has rallied more than 20% in the past week to approximately $92.86 per barrel, positioning it to breach the $100 threshold if disruptions extend beyond a few days. Wood Mackenzie's Alan Gelder, senior vice president of refining, chemicals and oil markets, noted that oil prices exceeding $100 per barrel are possible "if transit flows are not rapidly re-established." The consultancy warned that prolonged closure could drive prices into a $125-$150 range, potentially triggering global recessionary conditions.
US producers have emerged as early beneficiaries of the supply shock. ConocoPhillips shares have gained 33% since early December, pushing the stock above $110, while EOG Resources reached a 52-week high with a 23.7% year-to-date return. Both companies have emphasized capital discipline, with EOG targeting $4.5 billion in free cash flow for 2026 and ConocoPhillips maintaining a policy of returning 45% of operating cash flow to shareholders through dividends and buybacks.
Despite the price surge, US shale producers are showing restraint, prioritizing debt reduction and shareholder returns over aggressive drilling expansion. Analysts expect companies to maintain financial discipline unless prices sustain at elevated levels for an extended period, with any new investment likely targeting shorter-cycle projects in the Permian Basin.
The supply disruption comes as OPEC+ agreed to a modest 206,000 bpd production increase starting in April, far too small to offset the potential 3 million bpd loss from Iraq and other Gulf producers. Storage facilities across the Middle East are reportedly reaching capacity as export routes remain choked, limiting the ability of producers to maintain output levels.
With the Iran conflict showing no signs of imminent resolution and tanker traffic through the Strait of Hormuz at a virtual standstill, oil markets face a prolonged period of supply uncertainty. Traders are watching for any indication of diplomatic breakthrough or de-escalation that could allow maritime commerce to resume, though most analysts anticipate elevated prices through the second quarter at minimum.