Milestone is reached for first time since February
Oil settled above $50 a barrel on Wednesday for the first time since February, marking a significant milestone toward Houston’s recovery from the worst oil bust in a generation.
West Texas Intermediate, the U.S. benchmark, settled at $50.63 a barrel in New York, a dramatic turnaround from late April, when prices went negative for the first time in history. Analysts say $50 oil is enough formany U.S. shale companies to break even, but not enough to make a profit.
“We’re watching for milestones aswe recover from COVID and the havoc it brought on the industry, and $50 is a pretty good one,” said Karr Ingham, petroleum economist with the Texas Alliance of Energy Producers. “At $50, we’re going to put more rigs to
work and ultimately produce greater amounts of oil in Texas and the U.S.”
Yet for all the optimism surrounding the $50 mark, Houston’s critical oil and gas industry, which has shed tens of thousands of jobs during the pandemic, still faces a long road to full recovery. With coronavirus cases still climbing in much of the world, governments have again imposed business and travel restrictions, depressing demand for petroleum products such as gasoline, diesel and jet fuel.
WTI crossed the psychological threshold after Saudi Arabia said Tuesday that it would cut production by 1 million barrels a day in February but settled just shy of $50. The milestone was finally reached after the Energy Department said crude inventories last week declined by 8 million barrels. Despite a steady decline in crude inventories, the U.S. still has about 9 percent more crude on hand than the five-year average for this time of year, the Energy Information Administration said.
Meanwhile, questions remain over how the worst public health crisis in a century will permanently change the way people live, work and travel, all of which will have implications for global energy demand. As oil prices have rebounded, U.S. companies have ramped up production, particularly in the prolific Permian Basin of West Texas.
Oil producers last week reported operating 351 drilling rigs nationally, up more than 100 rigs since the count bottomed out in August at 244, according to Houston oil-field services firm Baker Hughes and energy data firm Enverus. The industry, however, has fewer than half the 796 rigs operating a year ago, just before the oil bust began.
If the COVID-19 vaccine rollout is successful and people resume normal economic activity, crude demand and prices could soar, hitting $60 a barrel by the summer, according to a Bank of America forecast. At $60 a barrel, analysts say many oil producers can restart new oil exploration and production projects in Texas.
This optimistic forecast, however, is dependent on OPEC gradually raising its crude production and the incoming Biden administration maintaining economic sanctions on Iran, which if lifted, could flood the global market with 2million barrels of excess crude and wipe out last year’s steady supply drawdown.
Even if oil prices and rig counts recover this year, Ingham said it’s unlikely employment in Houston’s oil and gas industry will fully recover from the pandemic as Wall Street investors and government policymakers shift from fossil fuels amid growing concerns about climate change. Texas’ oil and gas industry has lost nearly 30 percent— or about 60,000 — of its jobs since March, according to the Texas Alliance of Energy Producers.
Still, the prospects of sustained $50 oil will be a boon to Texas oil and gas companies, which have struggled to weather the global pandemic and oil bust.
“Oil moving above $50 a barrel is a promising sign that our economy is beginning to stabilize and strengthen, which is good for all Americans,” said Todd Staples, president of the Texas Oil and Gas Association. “With the availability of vaccines, I am hopeful that COVID will soon be in the rear view mirror and the industry can fully rebound in the next few months.”