Crude oil prices dropped below $80 per barrel Thursday that culminated in a decrease in gasoline prices below $3 per gallon in Texas. In many locations, regular self-serve gasoline dipped below $2.50, but the Energy Information Administration reported that the average Texas price was $2.946 per gallon.
The primary cause for the decline in oil prices seems to be speculation by futures traders that the world’s economic situation has worsened and demand for energy will decline.
Crude oil has decline $23.99 (24 percent) from $98.53 on Oct. 1 to $74.54 Wednesday on the New York Mercantile Exchange (NYMEX). Crude oil prices peaked on July 3 at $145, which is double the price Wednesday.
Natural gas prices also declined during the first half of October. Natural gas closed at $7.728 per million British thermal units (mmBtu) on Oct. 1 on NYMEX and declined $1.136 (15 percent) to $6.592 per mmBtu Wednesday.
But trading at various Hub locations was off even more. Waha, in West Texas, trading closed at $3.31 per mmBtu Wednesday, and Houston Ship Channel trading closed at $6.34. The locations are where natural gas is actually bought and sold. Gas at the Waha facility usually goes west and Houston Ship Channel usually goes either north or east.
There have been unofficial reports of independent oil and gas exploration companies deterring some of their drilling programs, but the most recent economic indicators still show optimism in the industry.
The oil and gas industry in Texas continues to expand at a brisk pace. The Texas Petro Index, which is a compilation of economic indicators in the oil and gas industry, was 279.6, setting another record.
Virtually every indicator is up over last year: the rig count, drilling permits for the year, oil and gas well completions, and even oil and natural gas production. For about 30 years, oil production in Texas has been declining, but, through August, oil production in Texas has increased 320,000 barrels.
Employment is another key indicator. From January to August, employment is up 7.6 percent (15,800) over last year and up 50 percent (74,700) over the base year of 1995.
Obviously, the drivers in the Petro Index have been natural gas and crude oil prices. Crude oil prices for the first eight months (through August) averaged $113.21 compared to $68.98 for the same period last year. Natural gas averaged $8.55 in August compared to $5.56 last year.
Even though crude oil and natural gas prices have declined quickly, they are still above the prices of a year ago and at level very few would have ever imagined.
Alex Mills is president of the Texas Alliance of Energy Producers, which represents 3,148 members in 28 states. The opinions expressed are solely of the author and do not necessarily represent the opinions and/or policies of the Texas Alliance. Mills cn be reached at alexm@texasalliance.org.
