2019 Oil Forecast in West Texas: Boom Expected to Continue

2019 Oil Forecast in West Texas: Boom Expected to Continue

West Texas is experiencing yet another comeback within the boom-bust oil industry. The revitalization is welcome to residents and businesses alike who hope activity continues to build on economic improvement through the region.  

Just 10 years ago, West Texas was dubbed a “dead area” by many in the oil industry. But today, oil pumps churn from countless oil wells throughout the Permian Basin. According to the U.S. Department of Energy, the Permian Basin is expected to produce 3.9 million barrels of oil per day (bopd) in 2019. That accounts for about one-third of all crude oil produced in the United States and the numbers are expected to grow, reaching over 9 million bopd by 2021.
 
Domestic numbers are expected to keep increasing, with the potential to reach a record 14 million bopd by late 2021, according to the U.S. Energy Information Administration’s Annual Energy Outlook (AEO 2019). The bulk of that growth comes straight from the Permian Basin, an area that covers more than 75,000 square miles in West Texas and Southeastern New Mexico.

The reason for this massive growth? The Permian Basin has benefited from technological improvements and more cost-effective hydraulic fracturing that allows producers to extract more crude oil from the shale formation. A recent report by CNBC has pipeline capacity increasing triple-fold by 2021, from 3 million to 9 million pipelines. The increase in capacity should help unclog the transportation bottleneck the Permian Basin has been battling, helping producers move more oil into the Gulf Coast and on to refineries and ports worldwide.

As crude oil production increases and domestic consumption of petroleum decreases, the AEO 2019 report also anticipates the U.S. will become a net energy exporter by 2020. In fact, the U.S. will likely pass Saudi Arabia and Russia as the world’s leading oil producer. But it’s important to remember that wells dry up rather quickly and require more drilling to keep pace, so technological improvements must remain a major consideration. 

What this means for West Texas Oil & Gas

Short-term “man-camps” are springing up everywhere and flashy new billboards dot the highway, advertising Rolexes and other high-ticket items to oil workers pulling in six-figure salaries. 

Compared with Gulf Coast barrel prices, oil in the center of the Permian Basin (Midland and Odessa) is priced lower but steadily climbing. West Texas Intermediate crude rose from $56.79 a barrel in the beginning of March and rose to just over $60 by the third week, while Louisiana Light hovers just over $68 a barrel.  

It’s not hard to remember the effects of falling oil prices in 2016. Many workers in West Texas were displaced when prices dropped to $30 per barrel. The drop led to massive layoffs and declining rig counts. Fortunately, rising oil prices are a good sign for employment rates and wages. Entry-level jobs are boasting $15 an hour pay with full benefits packages, but motels have jacked up the rates to hundreds of dollars a night. Food and housing costs are also soaring.  

With any boom, the threat of a bust is always on the minds of Texans, but local officials and industry executives think it’s different this time. The advances in fracking has made oil extraction possible in areas deemed impossible in prior years. Now the problem isn’t finding oil, it’s making sure the infrastructure is there to handle the amount of oil and gas that’s being extracted.  

At M&M Sales and Equipment, we support our local communities, oil workers and the businesses that supply them. That’s why we believe it’s important to keep our fingers on the pulse of what’s happening in the industries that impact us all. Stayed tuned here on our Blog or visit us on social to stay up-to-date on the industry news that matters to you.  
 
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