Elections, Global Economy Impact Future of Oil Industry

While the election of President is still undecided, Republicans in Texas were able to overcome a projected “blue wave.” Republicans won the U.S. Senate race, maintained a 23-13 majority in the Texas delegation in the U.S. House, lost one Texas Senate seat but holds an 18-13 lead, and has an 82-67 majority in the Texas House.

Perhaps the biggest surprise came with the election of a political novice, Jim Wright, defeating his Democratic opponent by about 1 million votes for the Texas Railroad Commission even though she received millions of dollars from former Presidential candidate Michael Bloomberg. Wright, who had upset incumbent Ryan Sitton in the Republican primary, owns an oilfield service company, and will become the newest member of the oil and gas regulatory agency.

Elections are very important for everyone in the energy business as the industry tries to cope with a worldwide pandemic and the impact it is having on demand and commodity prices.

Several economic indicators have shown strength recently. The U.S. drilling rig count has been rising slowly since the summer.  It rose 12 this week to 296, but it is down from 822 a year ago.

The Texas Workforce Commission reported upstream jobs increased 700 in September and it is the first increase since February.

Westwood Energy, a consulting firm, reports hydraulic fracturing crews have increased in the Permian Basin from 35 in July to 69 in September.

The U.S. Energy Information Administration said on Wednesday crude oil inventories declined 8 million barrels last week to 484 million barrels. Inventories reached record highs on June 19 at 540 million barrels, indicating a huge oversupply of oil.

As inventory figures increased, oil prices decreased. West Texas Intermediate went from $60 per barrel in January to $12 in April to about $40 today.

Even though conditions have improved somewhat, a second wave of the pandemic is causing further damage to the worldwide economy. England and several other European countries have announced new restrictions that will negatively impact energy demand.

Members of the Organization of Petroleum Exporting Countries, which produce and export a majority of oil, have tried to reduce the oversupply of oil on the international market by reaching an agreement with Russia to cut production by 9.7 million barrels per day (b/d). As the supply situation became more in line with demand, the countries agreed to lower the cuts to 7.7 million b/d and with hopes it could be lowered even more by yearend.

OPEC members have been hit hard as revenues dwindle. OPEC will earn about $323 billion in net oil export revenues in 2020, which would be the lowest in 18 years. OPEC earned an estimated $595 billion in net oil export revenues in 2019, EIA stated.

Global oil markets remain soft as demand expectations decline with the rise in Covid-19 cases.

Back in the U.S., producers will be watching closely global economic indicators and the news about the Presidential election because both will impact their businesses in the future.

Alex Mills is the former President of the Texas Alliance of Energy Producers.