The price of oil recently dropped below $70 per barrel for the first time since last December with OPEC, as usual, justifiably catching most of the brickbats.
After falling into the mid-$60s, the price lifted a little to $67.77 Wednesday while natural gas marginally rose to $2.301 per thousand cubic feet.
Odessa oilman Kirk Edwards, State Rep. Brooks Landgraf and Waco economist Ray Perryman say the oilfield’s characteristic optimism shouldn’t flag because conditions will inevitably improve.
“The one thing we in the oil and gas business know to be certain is that there is never any certainty in what the future oil and gas prices will be,” Edwards said Tuesday when the price was $64.78. “The latest drop puts oil today at a three-year low, which with all the turmoil in the world today seems so very unrealistic.
“But as we all in the Permian Basin now know, OPEC and in particular Saudi Arabia has and always will control the price of oil. If they wanted it higher today, they would be signaling to the other OPEC members to be cutting even more production than what has been taking place earlier this year.
“That is why producers must embody some sort of hedging into their portfolio to be able to withstand these ups and downs that we notoriously go through in this business.”
Edwards said natural gas is a much different product when it comes to pricing.
“The culprit on today’s price is the vast amount of natural gas being produced by the new Permian wells being drilled with literally nowhere for it to go,” he said. “Having that much excess gas puts a tremendous dampening effect on the price as it, too, is very low today.
“But there is much more optimism ahead for natural gas prices to get higher once more pipelines get installed to take gas away from the Permian and more LNG cargoes leave the Gulf Coast along with an abnormally cold winter.
“Those factors could easily double to triple the price from where we are today. Oil in the future is anyone’s guess unless you are Saudi Arabia.”
As the Basin navigates price fluctuations, Landgraf said, it’s crucial to recognize the dynamic nature of global markets.
“While price fluctuations are a natural part of the energy industry, our focus should remain on long-term stability and innovation,” Landgraf said. “Factors such as global demand, geopolitical developments and technological advancements play pivotal roles in shaping these markets.
“Despite short-term uncertainties the Permian Basin remains pivotal in energy production, well-positioned to seize growth opportunities and ensure stability ahead. I remain optimistic about the future of our energy industry and am committed to ensuring its continued strength and prosperity.
“Market conditions can change, but Texas’ energy sector has always shown its ability to adapt, innovate and emerge even stronger.”
Perryman said the prices of oil and natural gas, as with virtually all goods and services, are ultimately determined by the interaction of supply and demand.
“More than most products, however, they are also vulnerable to short-term news items and tend to be highly volatile at times,” Perryman said. “The primary information that the market is currently processing is slowing economies around the globe, reducing demand and thus causing prices to fall modestly.
“In particular, expectations for growth in business activity in China have slowed, contributing to a decision by OPEC to reduce its oil demand forecast.”
For prices to change significantly, he said, a shift in either supply or demand would be needed.
“On the supply side a shock such as a significant escalation in any of the conflicts in the Middle East could send oil prices up rapidly while better economic data coming out of large economies could lead to a more gradual rise emanating from the demand side,” Perryman said. “A major cold spell could cause natural gas demand and therefore prices to increase and the continued build-out of the LNG market will contribute to long-term price support.”
The economist said the energy industry should see prices trend in the current ranges for a while in the absence of some unexpected shock.
“Over a more extended time horizon in which the day-to-day headlines fade into the background and sustainable patterns prevail, prices will trend upward simply because global demand for all types of energy is expected to expand notably,” he said.
“As a result prices will have to be sufficient to generate the returns necessary to justify the risks and capital investment requirements associated with oil and gas production.”
