NM WELCOMES OPEC’S PLANS TO CUT OUTPUT
NM oil patch cautiously welcomes possibility of recovering revenues, jobs
Oil cartel has agreed to cut production for the first time in eight years, ending a strategy of high supply that has hurt the U.S. energy industry.
VIENNA — OPEC has agreed to cut its oil production for the first time in eight years, ending a strategy of high supply that had aimed to cripple the U.S. energy industry but also led to decade-low prices and drained the budgets of crude-producing nations.
The cartel will cut 1.2 million barrels a day from its present output after its 14 members put aside differences at a meeting Wednesday to agree on individual production levels.
The move, which will leave OPEC output at 32. 5 million barrels a day, is to take effect in January, said OPEC President Mohammed Bin Saleh Al-Sada.
The price of crude, which had soared earlier in the day amid anticipation of a deal, remained firm after the news. The international benchmark for crude jumped 8.3 percent, or $3.86, to $50.24 on Wednesday.
Higher prices, if they hold up, will be cheered in New Mexico’s oil patch, which lost thousands of jobs over the past two years.
Plummeting revenue from oil and gas also pushed New Mexico’s state budget into crisis, generating a budget shortfall of more than $400 million last summer for the new fiscal year that began July 1. Spending cuts and other measures approved in September in a special legislative session helped lower the deficit. But more measures will be needed in the upcoming session in January to fully balance the budget.
The long-term effects of OPEC’s production cuts are unclear. The world market remains flooded with oil, and U.S. production will likely climb as
prices rise. That, in turn, could offset OPEC cutbacks, forcing prices down again.
But for now, OPEC’s decision is welcome news, New Mexico Oil and Gas Association Vice President Wally Drangmeister told the Journal.
“It’s absolutely good today for the industry in New Mexico,” Drangmeister said. “Prices already went up. But in the longterm, we’ll have to wait and see.”
Global oversupply, combined with OPEC’s refusal to cut production before now, pulled crude prices down from over $100 a barrel in June 2014 to below $30 by last January.
OPEC had maintained its production levels despite plummeting prices to regain market from U.S. producers, who had driven U.S. output to record highs when prices climbed above $100.
OPEC’s position did force a reduction in U.S. production. But it also caused recessions in many other oil-producing nations, including Russia, Brazil, and OPEC member Venezuela, placing pressure on the cartel to finally accept production cuts.
Journal staff writer Kevin Robinson-Avila contributed to this report.