The Hunger for Substance
December 12, 2018
Improving the World One Community at a Time
December 12, 2018
PRICE HAS DROPPED MORE THAN 20 PERCENT IN NOVEMBER
This month marks our 12th issue of Bayou Business Monthly.
In each issue, we have had a story updating the latest happenings in the topsy turvy oil and gas industry.
The industry dominates our local economy and we know it, so we want to make sure that locals have a good pulse on where things stand.
Some of the updates have been positive. For a lot of the year, oil prices were up and forecasts called for a full-steam ahead surge forward into 2019.
But lately, those predictions have been wrong in a big, big way and forecasters are wondering when — if ever — will we see that uptick in prices that will get deepwater business booming again in the Gulf of Mexico.
In the past 90 days, oil prices have plummeted as uncertainty in the global supply have lingered and global economics have taken several twists and turns (more about those things later in the story).
On Oct. 1, oil traded near $75/barrel. On Nov. 1, the price had dropped to near $64/barrel. At press-time in the first week of December, the price was hovering just north of the $50/barrel mark — a more than 35 percent drop from where things stood on Oct. 1.
Long-term forecasts are uncertain. The political structure is changing day-by-day.
Locally, things haven’t been impacted significantly … yet. But Port Fourchon Executive Director Chett Chiasson has been on the record several times as saying that we need a higher price per barrel to spark deepwater offshore drilling. When that’s happening, our local economy is booming and everyone sees the benefits.
“A price that’s in the $70s is OK, but something in the $80 or $90 range and we really see that work pick up and that’s what we want — work to pick up as much as it can for the deepwater industry,” Chiasson said over the summer when asked about the prices. “Our tenants are waiting on it and riding out the ups and the downs, but we want an upward tick and one that stays here for a while.”
It looked like we were going to get it.
After prices bottomed out in 2016, they slowly rebounded throughout 2017 and into 2018 where it looked like a huge surge forward would be made.
At the end of 2017, prices hovered near or slightly above $60/barrel, but they quickly jumped north of $70/barrel in the first quarter of 2018 and stayed that way throughout the summer and into the fall.
But then things changed, which has puzzled many experts because it seemed like the economic climate was in favor for a price surge.
The global supply is in question with Iran’s supply totals in doubt and other producers like Venezuela and Syria severely cut.
But the forecasted supply cut has never materialized, which has kept a bit of an excess in the global market, which has lowered prices.
United State President Donald Trump has been a vocal proponent for lower oil prices, citing on Twitter that lower gas prices are good for the United States economy.
Part of the reason for the lower prices is abroad where U.S. crude oil production rose by more than 125,000 barrels per day in September — to help create the glut.
As production in the country has risen, demand has slowed — in part because of a slowdown in the global economy.
“The pressure has certainly been building as prices continued to fall amid ongoing concerns over excessive supply and lower demand growth,” Market Analyst Fawad Razaqzada told CNBC in late-November. “If no action is taken, oil prices could certainly drop further, while a production cut should lead to a sizeable rebound for those severely oversold levels.”
So which will it be — a continued fall or a production cut, which will send the prices up in the future, back to the higher levels we enjoyed over the summer?
There is evidence that points both ways.
OPEC’s advisory committee has recently suggested a 1.3 million barrel per day cut. If that happens, prices will soar, according to experts.
OPEC is also in talks with Russia for a production cut which could limit the supply.
But other experts are skeptical that either of those things will happen, which could mean for status quo or further cuts.
“In the end, no one really knows,” Razaqzada said. “And that’s where there’s the big unknown.” •
