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DEPA BLOG
  • 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.
     
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    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.

  • 09
    March

    Petroleum Industry News Sends Mixed Signals

    By Alex Mills


    There was a variety of news regarding the petroleum industry last week that sent mixed signals to industry observers.

    First, petroleum economist Karr Ingham said the Texas Petro Index increased again for the second month in a row.  The drilling rig count, drilling permits and well completions all increased from the previous month.

    Next came the news that ExxonMobil will invest $20 billion in the Gulf Coast region during the next 10 years, and increase employment by an estimated 45,000 jobs. ExxonMobil said it will strategically invest in 11 major chemical, refining, lubricant and liquefied natural gas projects in Texas and Louisiana to expand its manufacturing and export businesses.

    More positive news came from a report from the Business Council for Sustainable Energy.  According to the report, Americans now devote less than four percent of their total annual household spending to energy—the lowest since government started keeping records. “That welcome development is, in part, a result of the fracking revolution and of the declining prices of natural gas,” the report stated.  “Lower energy prices have also helped to reduce manufacturing costs, thus reviving the U.S. economy. Today, the United States generates very cheap electricity for industrial use, outranking China, India and Mexico.”

    In spite of those low energy costs, American producers have become more efficient. “The United States,” the report notes, "has decoupled economic growth and energy demand." Since 2007, American GDP grew by 12 percent, while overall energy consumption fell by 3.7 percent, it stated.

    Almost immediately following the glowing report from the Business Council for Sustainable Energy came news from the Energy Information Administration (EIA) that natural gas consumption has declined because of warmer weather. “Warmer than normal weather throughout much of the United States resulted in the first recorded net natural gas injection during a week in February since weekly storage data has been collected,” EIA stated. “For the week ending February 24, the amount of natural gas in storage in the Lower 48 states increased 7 billion cubic feet (Bcf). While some weeks during March in previous years had recorded injections, net injections of natural gas into storage do not typically occur until at least April.”

    The next day, March 8, EIA reported an increase in U.S. crude oil inventories. The EIA reported crude stocks rose by 8.21 million barrels to 528.4 million barrels.  Compared to the same period last year, crude oil stocks are 37.6 million barrels higher than current levels.

    Crude oil prices on NYMEX dropped 5.2% immediately to $50.28 and went below $50 on Thursday.

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