Oil gushes over $60-a-barrel mark
If price holds, local economy could enjoy boosts in drilling activity, jobs
Oil prices vaulted above $60 a barrel Friday for the first time since June 2015, reaching a threshold that could strengthen Houston energy companies and accelerate the recovery of the region’s oil-centric economy.
The milestone could mark a tipping point for local drillers, making less lucrative oil fields and costly offshore projects financially attractive, and spurring the hiring of thousands more workers in Houston. If oil holds near $60 a barrel, the metropolitan area could add 75,000 jobs over the next 12 months — 30,000 more than if prices slide back near $50, according to forecasts by the Federal Reserve Bank of Dallas.
“We could have a bigger expansion in drilling activity than many expected in 2018, which could be a tailwind for Houston,” said Jesse Thompson, a business economist at the Houston branch of the Federal Reserve Bank of Dallas. “But oil prices can go all over the place, and that makes Houston one of the most volatile metros to forecast job growth.”
U.S. oil prices rose 58 cents to $60.42 a barrel in New York on Friday, finishing the year 12 percent higher than it began and extending a rally in the second half of 2017 that has boosted prices more than 40 percent from their recent low of $43 a barrel in June.
Prices have more than doubled since they hit $26 a barrel in February 2016, the bottom of a brutal oil bust that cost Houston tens of thousands of jobs and pushed scores of companies into bankruptcy.
The last time oil prices
closed above $60 a barrel, in the summer of 2015, the oil industry’s glee was quickly followed by a plunge.
That’s unlikely this time around, analysts said, but they expect crude prices to dip in the first half of the year amid the slower oil demand typical of the winter, when Americans drive less.
Oil prices have sailed higher in recent months after a string of supply disruptions and signs of rising geopolitical tension in the Middle East.
Hurricane Harvey’s floodwaters shut down major refineries across the Gulf Coast. OPEC and its allies agreed to keep 1.8 million barrels of oil a day off the market for another year. A small crack forced operators to shut down a major U.K. pipeline system. And internal strife in Saudi Arabia, violence in Iraq and a pipeline blast in Libya added to the oil market’s rise.
Steady rise in demand
The International Energy Agency, a Paris-based adviser to energy-importing countries, also projects that global oil demand will increase at a healthy 1.3 million barrels a day, or 1.3 percent, in 2018.
“Oil demand continues to grow at a pretty good clip, and we’re facing geopolitical headwinds,” said Andy Lipow, president of Lipow Oil Associates in Houston. “Although the U.S. is going to produce a record amount of crude oil exports, those will go to satisfy the world’s thirst for oil.”
Over the course of next year, Lipow said, oil prices will likely rise a few dollars a barrel and end 2018 in the $60 to $65 range.
Most oil executives think crude prices have to exceed $60 a barrel for the industry to see another surge of drilling next year, according to a survey by the Dallas Fed. Forty-two percent of those surveyed said oil prices will have to float between $61 a barrel and $65 a barrel for the nation’s active oil-rig count to see a big jump from the current 747 working rigs.
The number of working U.S. oil rigs has climbed from 525 at the beginning of the year, but has remained flat in recent weeks, according to the Houston oil services company Baker Hughes.
Traders Friday reacted to Energy Department data showing U.S. crude inventories fell 4.6 million barrels last week, adding to declines that have shrunk the nation’s commercial stockpile of oil by more than 100 million barrels since peaking at 536 million barrels in March. But analysts warned that high oil prices could encourage U.S. shale drillers to rapidly ramp up production and add new supplies to the market, which could halt the advance of crude prices.
Domestic output rises
On Friday, the Energy Department said domestic output rose to 9.64 million barrels in October, the highest level since May 1971, and up 1.8 percent over September.
It expects output to rise to an all-time record next year above 10 million barrels a day.
Companies could increase spending — an indicator of future production — by 15 percent in 2018, according to a survey by New York investment bank Evercore.
“The companies that have announced plans for 2018 are increasing their outlook for production and spending, not reining it in,” said Aaron Brady, an oil market analyst at IHS Markit. “That’s going to limit how high prices can go.”
Even if oil prices remain higher, there’s no guarantee that would accelerate Houston’s economic growth, said Thompson, the Dallas Fed economist.
Instead of hiring, he said, the money could go to satisfy investors demanding returns or creditors, holding large debts run up during the oil boom of 2014.
“There are competing claims on that money,” Thompson said.