Confidence has always been the biggest factor in capitalism and it’s no less so in today’s energy industry.
With the price of oil bouncing like a basketball in the NBA and fears of a national and international recession rampant, the futures market is understandably cautious in the extreme.
And with the price of West Texas Intermediate Crude Oil standing at $96.98 per barrel Wednesday, down from $102.24 June 30, investors don’t have the traditional fallback as futures contracts descend from $90.13 in November to $88.27 in December, $84.97 in January, $82.80 in March and $79.63 in August 2023.
Amarillo economist Karr Ingham and Texas Independent Producers & Royalty Owners President Ed Longanecker say that, as ever, there’s nothing simple about the situation. “It’s partly wrought by bad federal energy policy and excessive regulations,” said Ingham, petroleum economist for the Texas Alliance of Energy Producers.
“The futures market may be contemplating a recession, which would clobber demand. Is it justified? Yes, I don’t say we’re going to be in a recession in the coming months, but we might see some relative weakness in the price.”
Ingham said the Biden administration’s over-spending is another cause. “We should be continuing to experience a robust post-COVID economy, but inflation is keeping us in check,” he said. “We’ve had extraordinary levels of government spending with Biden’s massive reconciliation bill, trillions upon trillions. Now they’re trying to put together another reconciliation bill.
“With inflation at its peak, the last thing we should want to do is throw more gasoline on that fire.”
Ingham was asked if the American energy industry has been affected by the Federal Reserve Board’s three-quarters of a point interest rate increase in June and its promised key short-term bumps to 3.4 percent by year-end and 3.8 percent by December 2023.
“Yes, the Fed is trying to walk a tightrope with a managed slowdown in economic activity that to a degree will bring a contraction in energy demand,” he said.
Longanecker said from Austin that China also figures in. “Recessionary fears and the potential impact of China’s draconian COVID policies continue to be offset by concerns over tight oil supplies and we are seeing these issues impact WTI futures,” he said.
“Regardless, demand will continue to outpace global supply this year even with the easing of production quotas from OPEC-Plus members, many of whom simply cannot increase capacity in the short term. We’ll experience increasing levels of volatility in the months ahead due to these and other factors including geopolitical conflicts and growing unrest over the escalating energy crisis in Europe.”
Longanecker also cited the federal regulatory factor. “A hostile regulatory environment for domestic oil and natural gas production is contributing to uncertainty in the market,” he said.
“That could drive inflation and the cost of goods and services higher for American consumers even with the economic dampening rate-setting efforts by the Federal Reserve Board. U.S. policymakers are placing undue demands on energy producers. If we want price stability and if we want to ensure a secure domestic energy supply to address our own energy needs and those of our allies abroad, we need a stable regulatory environment in the U.S.
“The Biden administration must develop a rational energy policy strategy including opening federal leasing, approving permitting for energy infrastructure and providing the regulatory certainty needed to support the long-term investments that are necessary to achieve energy security for our country and allies.”
