The Saratoga Sun -

Will oil rises help?

Rig counts have risen with escalating oil prices but it is still difficult to predict possible benefits to Wyoming

 

File Photo

This drilling rig, just north of Saratoga, was in place during $106 a barrel oil in March of 2012.

Recent developments abroad in oil markets have some potential to benefit Wyoming's economy in 2017, but it's difficult to predict whether the state will reap the benefits of rising commodity prices or not.

In December, the Organization of Petroleum Exporting Countries (OPEC), plus a few other non-OPEC members such as Russia and Mexico arrived at an agreement by members to cut production of crude oil by about 1.8 million barrels per day. This move prompted oil prices to begin a climb in December that saw prices for crude hit around $56 per barrel, a price that makes extraction in Wyoming more economically feasible. Bloomberg Analytics, in New York, reports an estimated price per barrel of $57 by summer.

Oil prices have increased lately because more investors are believing what OPEC says, said Jim Robinson, principal economist at the Economic Analysis Division of the Wyoming Department of Administration and Information. "We've heard OPEC say a bunch of times that they're cutting production, and it never happened," he said. "This time, there are enough people who believe it."

Overall, West Texas Intermediate Crude (WTI) commodity prices between $55-60 are good news for Wyoming in a broad sense, Robinson said. However, whether rising oil prices will be sufficient to lift Wyoming's economy from the doldrums is a far more complex question, he said.

"With improving natural gas and crude oil prices, you'd expect to see some increased drilling in the state," Robinson said. "We are seeing a bit of an uptick in drilling, with about 18 or 19 rigs per month in December."

November's rig count was 16, Robinson said. Baker-Hughes, a Houston-based oil field services company with operations in Wyoming reported five new oil rigs operating in the U.S. during the last week of December, up five rigs from the previous week. According to the company, nationwide, there were record amounts of new rigs coming active in the month of December.

At the end of 2016, there were 40 fewer operating rigs in the U.S. than there were at the end of 2015. The greatest increase in rigs were in the Permian Basin, which is mostly in West Texas and part of New Mexico. The Permian saw an increase of 47 active rigs during the last week of December 2016 and 2015.

In the last week of December, there were no active rigs added in Wyoming. There were two more rigs active the last week of December 2016 than the last week of December 2015, according to Baker Hughes.

Robinson says it makes sense to see new rigs in places like Texas before more significant increases are seen in Wyoming. Because of the degree to which Wyoming's economy was hit by the downtown in oil and gas prices, many of the work crews that were in the state left. Robinson said that states like Texas have a more permanent population of workers in the oil and gas fields, and that is why when prices begin to rebound, increases in rigs are often seen first there.

That fact is what makes it difficult to guess whether Wyoming will be able to capitalize on higher commodity prices, and how long it may take for that to happen. "Oil is at $55 per barrel and natural gas is creeping up in value, too," Robinson said. "As it gets closer to $60, states like Texas and North Dakota can quickly make changes to capture a better price."

"In Wyoming, a lot of the crews that do that kind of work left during the slowdown," he said. "It's hard to bring those people back to Wyoming."

The flexibility enjoyed by states like Texas and North Dakota to shift production rapidly could also affect how high Wyoming's economy is buoyed by oil prices. As more rigs in those states come online to capitalize on the rising price of crude, the supply of crude increases. Unless demand also begins to increase, production from those other states may keep the increase in crude prices in check. For some states where it's not so easy to rapidly boost production like Wyoming that could mean that demand is met by other states before the boom reaches here.

On Tuesday, Bloomberg reported that the cost of WTI crude decreased 2.6 percent, dropping by $1.39 to $52.33 per barrel. According to Bloomberg's analysis, the price decrease came about as some investors became skeptical of OPEC's ability to reduce output, as well as increased output by American and Canadian drillers in the last month.

 

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