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  • 11
    May

    OPEC Meeting May 25 Will Be Watched Closely

    By Alex Mills


    It is no secret that the Texas economy is closely tied to the oil and gas industry.

    And, it is no secret that the economic health of the oil and gas industry is tied to the price of crude oil.

    And, it is no secret that the price of crude oil is tied to the relationship between the supply and demand of oil.

    And, it is no secret that the Organization of Petroleum Exporting Countries (OPEC) is the major supplier worldwide.

    And, it is no surprise that Saudi Arabia, the world’s largest exporter, is the key OPEC member.  That is why oil traders, who buy and sell crude oil across the globe, watch and listen to Saudi Arabia’s.

    Last week, Saudi Oil Minister Khalid al-Falih said, “OPEC will do whatever it takes to rebalance the global oil market.”

    OPEC members will meet May 25 to discuss oil production quotas.  He expects OPEC to extend its 1.2 million barrels per day (bpd) production cut another six month to the end of 2017.  Eleven other oil exporters have agreed to reduce production another 600,000 bpd, which includes 300,000 bpd from Russia.

    The reductions were implemented in January, and have been effective in reducing worldwide supplies somewhat, according to the International Energy Agency (IEA). Global oil output has fallen 800,000 bpd in 2017 compared to last year, IEA stated, which is short of its 1.8 million bpd goal.

    There have been some reports that while oil production declines from OPEC members have occurred, some countries have been exporting oil they have in storage, circumventing the goal to reduce oil supplies worldwide.

    Compliance with the production cuts by OPEC members is another concern.  As oil prices increase, producers are temptated to exceed their production quotas.  Historically, OPEC members have not been able to abide by the group’s production quotas.  However, OPEC, under the leadership of Saudi Arabia, established an oversight committee with the purpose of monitoring activities of producers and reporting discrepancies at its May 25 meeting.

    Another issue has been the rise in production in the U.S., which has increased from 8.5 million bpd in October 2016 to 9.3 million bpd currently. 

    IEA also said that worldwide demand will increase because refineries have completed maintenance and retrofitting in preparation for the summer driving season. IEA predicts world oil demand to increase 1.3 million bpd this year.

    Closer to home, the Energy Information Administration (EIA) at the Department of Energy reported Wednesday that domestic crude oil supplies dropped by 5.2 million barrels for the week ending May 5.  Also, gasoline stockpiles declined by 200,000 barrels, and distillate stockpiles were down 1.6 million barrels.

    The decline in inventories prompted a $1.43 rise in crude oil price on the NYMEX to $47.33 on Wednesday.

    -30-
     
    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.

  • 27
    April

    Oil Futures Lower As Supply Gains Create Uncertainty

    By Alex Mills


    Crude oil is entering another period of uncertainty as producers in the U.S. continue to increase exploration while OPEC nations and Russia try to maintain their pledge to reduce their oil production by 1.8 million barrels per day.

    Crude oil prices on the New York Mercantile Exchange (NYMEX) closed below $50 per barrel on April 24 for the first time since May 29.

    Traders worldwide are trying to sort it all out, but a key factor is OPEC’s decision to continue its six-month agreement to reduce its oil production, which expires June 30.

    Also, drilling and production in the U.S. has increased for 14 consecutive weeks. U.S. oil production is 9.3 million barrels per day, up almost 10 percent since mid-2016.

    OPEC’s monitoring committee oversees compliance with the collective production cuts, and it has endorsed a continuation of the production decrease for another six-months, which is a strong indication that OPEC will approve the committee’s recommendation at its next meeting in May.

  • 06
    April

    Texas Economy Improves Led By Oil Industry Activity

    By Alex Mills


    The economy in Texas has shifted into second gear and is expected to grow in 2017, according to a study released recently by the Federal Reserve Bank of Dallas.

    “The outlook for the Texas economy has improved considerably from a year ago,” Robert Kaplan, President and Chief Executive Officer of the Dallas Fed, said.

    “Texas jobs are expected to increase between 1.5 percent and 2.5 percent, as the energy sector improves and the service sector grows at a moderate pace,” the report stated.

    “The largest risk to the outlook is a sharp change in oil prices.  A continued appreciation of the U.S. dollar, making Texas goods more expensive abroad, also poses a significant risk to Texas exporters,” the report stated.

    The report said oil prices held steady above $44 per barrel since May 2016 and provided “a great sense of stability in energy markets.”  Near the end of last year, OPEC agreed to cut production of oil, and a new president was elected that issued executive orders repealing many regulations on the domestic energy industry.

    The Texas Petro Index also confirms the report’s findings.  Crude oil prices rose from an average of $27.08 per barrel in February 2016 to $50.03 per barrel in February 2017.  Natural gas prices at the wellhead increased from $1.84 per million Btu to $2.70.  Also, drilling permits issued by the Texas Railroad Commission increased from 1,083 to 1,947 and the drilling rig count rose from 244 to 370 in Texas during the same period.

    “Although energy prices are not expected to rise significantly in 2017, optimism among energy company executives has surged, and drilling activity is expected to pick up,” the Fed’s report stated. “The Dallas Fed’s Energy Survey shows a much higher share of respondents reporting a positive outlook in exploration and production firms as well as support services companies in the fourth quarter 2016.  Given this optimism, a more robust recovery is likely this year as capital expenditures rise and oil and gas employment stabilizes.”

    Two oil and gas industry publications recently forecast a rise in drilling, production, and capital spending this year.  The Oil and Gas Journal proclaimed “North American upstream spending to soar in 2017.”  World Oil magazine stated: “Drilling in the Lone Star State will rise 26.4 percent with double-digit increases expected for all 12 of the Railroad Commission districts.”  

    -30-

    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.
  • 29
    March

    Trump Orders Agencies To Identify Obstacles To Energy Production

    By Alex Mills


    Energy policy has taken an about-face in the nation’s capital.

    Instead of the President implementing policies to restrict the use of the nation’s most plentiful energy sources, the nation’s new leader encourages domestic energy production and believes in limiting imports.

    Some have used the phrase “energy independent.”


    Others tout the idea that increasing supplies of energy produced domestically will also increases our financial and national security.

    President Trump on Tuesday, March 28, issued an executive order reversing many of the detrimental policies implemented by the Obama administration.

    One of the most controversial orders issued by Obama dealt with the adoption of a policy that allowed for the administration of compute the social cost of carbon, and use this to justify their energy and environmental policies. This concept was never authorized by Congress, and never adopted using the Administrative Procedure Act. It is based on questionable processes to calculate the impact of carbon reductions on climate changes.  Trump’s order requires reconsideration of the process that was used to justify a wide range of regulations.

    The order also instructs the Department of Justice to tell the U.S. Court of Appeals that it wants to delay a legal case brought by states and industry groups, which challenges the Clean Power Plan.

    A key component of the Clean Power Plan was the adoption of EPA’s methane rule in the final year of the Obama administration.  States and industry organization filed a lawsuit against the rule, which is pending from the U.S. Court of Appeals in D.C.

    The oil and gas industry had stressed to EPA and other federal agencies that methane and CO2 emissions have been declining for years, and the strict standards set by the Clean Power Plan were not necessary.

    According to the U.S. Energy Information Administration (EIA), U.S. energy-related carbon dioxide (CO2) emissions during first six months of 2016 declined to the lowest emission levels since 1991. EIA reported CO2 emissions totaled 2,530 million metric tons in the first six months of 2016.

    EIA attributed the reduction to mild weather and changes in the fuels used to generate electricity, which contributed to the decline in energy-related emissions.

    EIA’s Short-Term Energy Outlook projects that energy-associated CO2 emissions will fall to 5,179 million metric tons in 2016, the lowest annual level since 1992.

    Also, EPA recorded another drop in methane released from the nation's petroleum and natural gas sector, prompting calls from industry to take down Obama administration’s efforts to control emissions from oil and gas sources.

    Methane from energy production, processing and storage infrastructure reached 70.3 million metric tons of carbon dioxide equivalent in 2015, down 3.8 percent from 73.1 million metric tons the year before. Last year marked the fourth consecutive year that the sector's methane emissions have declined.

    Across production fields in oil-rich Texas, methane emissions fell by a combined 3.58 million metric tons of CO2 equivalent between 2011 and 2015.

    The White House said the order will direct each federal agency to identify rules and policies that serve as obstacles or impediments to domestic energy production.
     
    -30-
     
    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.

  • 17
    March

    Oil Producers Nervously Watch Industry Trends

    By Alex Mills


    The oil industry in Texas and across the U.S. nervously awaited a weekly report from the U.S. Energy Information Administration (EIA) on Wednesday, and for the reaction of crude oil traders who bid on New York Mercantile Exchange (NYMEX) oil futures.

    Crude oil production in the U.S. has been increasing since July from 8.458 million barrels per day (b/d) to 9.109 million b/d on March 10.  Crude oil stocks had increased for nine consecutive weeks, resulting in prices declining to $47 from a high of $54 just two weeks earlier.

    Saudi Energy Minister Khalid Al-Falih added to the tension last week when he said Saudi Arabia, the world’s largest exporter of oil, will not "bear the burden of free riders."  Al-Falih was referring to other members of OPEC who have not been abiding by its agreement to reduce oil production in an effort to decrease the oversupply and firm prices.  OPEC nations agreed to cut production in November that would begin in January.  Early indications supported the decline in production, but a recent report from OPEC showed a rise in global crude oil inventory despite OPEC’s decline in production.

    However, EIA’s report on Wednesday surprised many by stating that oil stocks in the U.S. declined 200,000 barrels since the previous week, breaking the string of nine consecutive weeks of increases.

    Traders responded to the news, increasing oil prices by $1.14 per barrel on Wednesday to close at $48.86.

    Also, the Federal Reserve Bank announced it will raise the benchmark short-term interest rate by a quarter-point and possibly raise interest rates more this year.

    After the announcement from the Federal Reserve Bank, the dollar’s strength began to soften among traders, which was a positive for crude oil prices because oil is traded in dollars.

    EIA’s news was supported by a report from the American Petroleum Institute that said crude oil inventories declined 531,000 barrels.

    EIA noted that gasoline supplies fell by 3.1 million barrels, and distillate stockpiles dropped 4.2 million barrels last week, too.

    However, U.S. crude oil inventories are just below the historic high levels reached on March 3 at 528.393 million b/d.

    Minister Al-Falilh, speaking at an energy conference in Houston, said Saudi Arabia cannot be the swing producer any longer.

    “We can’t do what we did in the ‘80s and ‘90s by swinging millions of barrels in response to market conditions,” he said.

    OPEC members and some non-OPEC members all agreed to cut production 1.8 million b/d during the first six months of 2017. OPEC members are scheduled to meet again on May 25 in Vienna to evaluate it production decline policy.

    Meanwhile, oil producers in the U.S. will be nervously waiting and watching.

    -30-

    Alex Mills is President of the Texas Alliance of Energy Producers.  The opinions expressed are solely of the author.