There are currently serious fears about a glut in the oil markets – too much oil. And an abundance of oil has the effect of pushing prices down.
This can be a double-edged sword for Texas, because while that usually means energy can go cheaper, that also means people in the industry, including thousands who work in the Texas oil fields and in the service industries that support energy production, are at risk of losing jobs.
Those fears of an oil glut help explain a move by OPEC yesterday that was both highly anticipated and, according to our go-to industry analyst Matt Smith, something of a surprise, too.
Smith is lead energy analyst at Kpler. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: OPEC met over the weekend and although they decided to raise production in December, they've paused their increases for Q1 of next year.
Why is this? Could you say more about it? I presume it has to do with trying to manage that feared glut.
Matt Smith: Yeah, that's exactly the case. And so this glut isn't quite here yet. We're not quite seeing it play out in terms of rising inventories. But what we do have is a lot of supply coming to market and it's actually coming from OPEC themselves.
So we've seen Saudi Arabia exporting a lot more crude in recent months. That is a kind of seasonal trend, but there's a lot coming from them, from UAE, these different Middle East countries.
But this is coming at a time when there's a lot of supply coming from non-OPEC, which they don't have control over. So that's increasing production from Brazil, from Guyana, from Norway, from Canada. The list kind of goes on.
Their concern is that this is going to overwhelm the market. So they've said, okay, we'll increase a little bit for December. Then we'll hit pause and kind of wait and see.
Interesting. Well, prices, one would expect, to have reacted to this news. What do you see?
Not much. So we're selling off slightly, but you know, you can interpret this both ways, right? You can spin it as being supportive for prices because they're holding supply off the market, but then you could view it as bearish, you know? Just because they are reacting, and so perhaps things are going to get much worse.
But generally, this is just a very much a wait-and-see market right now. There is this expected glut. We're seeing a lot of oil going onto the market. Until we start to see that showing up in inventories, I think everyone's kind of very skeptical about it.
Well, President Trump had a much-discussed meeting last week with the Chinese leader Xi Jinping and noticed that Wall Street seemed to react rather sharply to that news. Of course, with earnings reports from Amazon, we were seeing that stock really take off.
How was that meeting affecting oil markets? Or are we still looking at a lack of direction there?
There is still that lack of direction. And I think it should be the case for broader markets as well, in that there was progress made at this meeting, but it wasn't anything too revolutionary, right?
So, there were kind of a number of agreements or concessions made by either side. And so, China has had its tariffs reduced a little bit, and they've made commitments to the U.S. in return there. But this is tentative progress. This isn't any kind of full resolution by any means there.
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Of course, we are headed into a big travel season for the U.S. and much of the world with the holidays approaching. What about prices at the pump? What does all this add up to there?
Well, we're continuing to hang around this $3 a gallon level on the national average. For Texas, the average is $2.55. Seasonally, we should be seeing it moving lower from here on out as long as oil prices kind of hold around this level.
So it's very much a good thing, right, that we're seeing low price at the pump. But again, there's the flip side that if prices at the pumps are low, it means that all prices are low and that's therefore affecting the industry and jobs in Texas.
What about natural gas? Any word on that front?
That's an outlier, actually. So, we've been seeing prices ripping higher there. So they've got about $4 in MMBtu. So that's the highest it has been since the spring there.
And the reason for that has been there's a cooler start to winter happening. And so storage levels are okay. But you tend to see, as we move November into December, that we'll see storage being drawn down. It's called withdrawal season, just because you have to meet higher winter demand – you know, heating demand.
So the cold start or the swift start to winter here has really driven on natural gas, whereas for oil and for prices at the pump, they are kind of heading in the other direction or at least holding steady.
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