War is over, if you want it, President Donald Trump in his State of the Union address once again declared “We have ended the war on American Energy-and we have ended the war on beautiful clean coal. We are now an exporter of energy to the world, as well as stating that the era of U.S. economics surrender is over”

These words, of course, are welcome by those in the energy industry that really felt that they were targeted by the past Administration for trying to do their job and provide energy to an energy-starved economy. It was the ingenuity of the energy industry that leads to the U.S. shale revolution and really helped set the stage for a new era of energy dominance. The U.S. is not only one of the biggest users of energy, they are now the global hub and energy crossroads of the world. We are an emerging exporter, importer, producer, and refiner. Instead of the old mantra that “we can’t drill our way to energy independence” we are now relying on grit, technology and innovation and the power of the desire to make a profit has done what many said was undoable. Yet, the U.S. energy industry went ahead and did it anyway. That dominance, of course, has put the U.S. in a unique economic position that will allow our economy to grow strongly in the decades ahead and enhance the ability of U.S. businesses to compete on a global stage. Add to that Trumps tax cut and that is why we have set the stage for the strongest outlook for the U.S. economy in many years. Even with the big back to back two -day correction is it any wonder why the U.S. economy is leading the globe on this amazing economic comeback story.

The comeback story on oil also stalled as the market worried about a plunging stock market and the reality that as you get into refinery maintenance season you may see crude supply start to rise. The American Petroleum Institute (API) did report a larger than expected 3.229-million-barrel increase in overall crude supply but the bearishness of that build was tempered with a reported 2.383 million barrels drop in the Cushing Oklahoma delivery point which continues its record pace of withdrawals. U.S. exports slowed a bit as the export window, compared to the Brent crude, came in substantially.

What was more supportive of the overall complex was the larger than expected 4.096 million barrels drop in distillate supply that keeps that market very tight and should keep diesel fuel and jet fuel on the rise. Gasoline inventories did rise by 2.383 million barrels but that might not bring much relief at the pump as there is some specifications of gasoline that are in tight supply and the high cost of crude. The Energy Information Administration will have their say but so, too will the Fed.

It’s Janet Yellen’s swan song and fears about the dot plot on future rate increases will be watched by oil traders. The oil trade has been helped by a weaker dollar and the fact that the Fed can’t seem to get the inflation rate that it wants. The Fed will signal rate increases and with yields rising it may cause some fears of a rising dollar. The Wall Street Journal wrote that the two-year U.S. Treasury note yield, which rose to a nine-year high of 2.124% on Tuesday, now offers more compensation than the S&P 500 dividend yield, which was at 1.69% this week, or the Dow Jones Industrial Average’s dividend yield, at 1.97%. If the Fed comes off a little more hawkish than feared than we could see a dollar spike and a commodity and oil sell-off. More than likely the Fed will not want to rock the boat and make Janet Yellen’s going away party seem a little rocky.

While the oil war is over, it is not coming without cost. John Kemp, at Reuters, warns that U.S. shale producers are facing rising costs for everything from drilling rigs to pressure pumping equipment and labor as the cyclical expansion in oil prices and drilling matures. He says that the cost of drilling oil and gas wells has increased significantly over the last year, according to the latest provisional estimates from the U.S. Bureau of Labor Statistics.

Kemp writes that drilling costs have increased by more than 10 percent since hitting a cyclical low in November 2016, though they are still 27 percent below the cyclical peak set in March 2014. Changes in drilling costs tend to follow changes in the number of rigs employed with a lag of around 1-2 months. Shale drilling costs have been on a gradual upswing as the number of rigs drilling for oil and gas has more than doubled from 404 in May 2016 to 947 in January 2018. The number of active rigs is still less than half its peak before the oil prices started slumping in the second half of 2014. But Kemp says that the rig market is tighter than it appears because many older rigs have been scrapped, cannibalized for spare parts, or are simply unsuitable for drilling the very long wells now favored by shale producers.

Producers increasingly favor new high-powered horizontal rigs that can drill ultra-long laterals as quickly as possible, so many of the older, lower-powered vertical or directional rigs are of marginal value. In other parts of the service sector, especially pressure pumping, shortages of equipment and trained crews are even more acute, and prices have been rising even faster. Drilling costs have risen over the last 12 months at the fastest rate in almost four years and at rates comparable to the boom between 2011 and 2014, albeit from a depressed base.

Natural gas has been on a wild ride as winter and crazy expirations have kept this market on edge.