Oil Prices Stay Low; Sustained Price Could Impact Wyoming

Nov 30, 2018

The North American benchmark price of oil dropped this week to its lowest since 2017. It pulled down share prices of major producing companies with it - many that operate here in Wyoming. Wyoming Public Radio's Cooper McKim speaks with Refinitiv market specialist Carl Larry on what the drop means and how it happened.

CL: Well, I think you know the first concern of the oil price drop has definitely been the global economy. We've seen demand pull back from China. We've seen some issues in other countries of Latin America and obviously in the US. We've had some issues here where there's a lot of supply and demand is not really keeping up with that. So, that kind of started it. You know what definitely follows it up and what we're ending with here these past couple weeks is the high glut of supply. We are producing so much will it hurt us right now. It's weighing on the market.

CM: I thought there were some international factors that weighed into this as well. Is that a part of it?

You know it is. And as we talk about supply that's where we see the issues with the international factors. We're seeing a lot of other countries, you know, mainly Saudi Arabia's being the biggest culprit of producing higher amounts than they have in the past few years. Saudi Arabia right now is pumping well over eleven million barrels and coming closer to 12 million barrels a day with not a lot of buyers on the market. So, between the U.S. you know exporting about 3 million, or two and a half, million barrels a day and the Saudis producing at net record levels, we're seeing a lot of supply here. So you know it could be people are trying to be careful if there's going to be sanctions in Iran or if we're seeing some issues down in Venezuela, people want to make sure oil for the market. But right now it's just too much, too soon.

WTI Crude (Jan'19)
Credit CNBC

You mentioned sanctions on Iran that sought to tank Iran's oil exports and limit global production. What happened there?

They've been selective. So, what happened because of the sanctions is that we saw an immediate shock. People were thinking 'oh bad.' But then President Trump gave a little loophole here and there to several different countries so they are still pulling oil out. It's just not putting as much oil out. So, you know there's an issue there. People are afraid we're going to run out too fast. But what's really happening is that there's just not enough demand for it even if Iran wasn't around sanctions, we'd still have too much oil right now.

So, Wyoming is one of the bigger producers of oil & gas and increasing… it's also been a key contributor to tax revenue, so it does have a top-down effect. Do you think this price drop is going to last and if it does, will it have any impact on oil producing states in Wyoming?

I think that the oil prices dropping so significantly over the last seven weeks we have learned a lesson. Something we saw back in 2014 when oil production in the U.S. was going higher, we saw prices go very high. But at that point, OPEC refused to cut back on their production. So did Russia, they kept pumping and we saw significant drop back in 2014 into '15 and felt all the way down to 2016. So, the point is I think that this time around OPEC, Russia, the U.S. - we all know a little bit better. We're not going to see that significant drop back down from from where we were to the low 30s, the high 20s. I think we're going to find a stop gap here somewhere soon, in the 50s. And what's important for a state like Wyoming, we need to see WTI [West Texas Intermediate] the U.S. benchmark, above 50 dollars. We'd like to see it above fifty-five to make it, you know, a little wiggle room and we definitely would like to see it above $60 to keep things going forward. So right now it's a precocious time but I think, you know, I think all parties involved are a little bit smarter and we have a lot of potential to go back up in the next few months.

Companies share prices that operate here, some of the publicly traded companies like Anadarko, EOG. They've seen a little bit of stock hits. How long would it have to be of depressed prices for there to actually be a change in management plan or a change production plan?

The way oil companies usually work especially in the US is when they become sensitive to prices they need to see that extend past three months. Three months is at key level, that key area, where oil companies realize 'OK, we need to start pulling back. We need to start pulling back.' You know, make plans that kind of halt the production. So I think right now like we mentioned at the start we're about seven weeks in. So you know we've got to pay another five or six here before somebody really starts to say we got it we have to stop now we we can't keep going like this if these prices stay so depressed or you have the risk of going lower. So, it's you know it's getting to that point but I think that there's a lot of potential here for the new year to kind of turn this around right now.

So, 2019 you see as a potential moment to bounce back?

I do. We just need OPEC and Russia to kind of pull back a little bit just enough so we can see some firmness in oil prices and we could see that rebound kind of continue all the way through the first half of next year.

If oil prices are high, gas prices would be high? Pretty equivalently?

You know, it's we've managed to balance it out. So even if prices do go back up I don't think we're going to see that that rubber band snap where prices are going to shoot back up and we'll see high gasoline prices we moderate. But you know we have to take the good with the bad sometimes and growth isn't so bad.

Post-interview:

A market analyst EOG Resources has said it's able to operate comfortably at $40. Current barrel prices from WTI are $50.56 (11/30 1:36 p.m.), but it's juggling each day between $50 and $51.