Texas Railroad Commissioner Ryan Sitton expects the price of oil to “aggressively increase” in 2017.
After speaking at the North Shore Republican Women’s general meeting Wednesday in Montgomery, Sitton said he believes the industry will see sustained low oil prices throughout most of 2016.
However, based on market research he thinks prices will climb a year from now.
“When they do they are going to climb pretty aggressively,” Sitton said. “We think that we will see 50, 60, 70 dollars a barrel relatively quickly.”
By “relatively,” he compared the market’s return in the ‘80s.
“It took literally years to climb out,” he said. “I think it will take us less than a year for us to see it back in the 60 to 70 dollar barrel range. By sometime in 2017 I think we will see that.”
The current Texan economic structure is different from the one in the 1980s, according to a review published by the U.S. Department of Labor.
“In 1982 oil and gas related employment was 4.7 percent of total employment in Texas, and in 2014 it was 2.6 percent.” The DLS review said. “A major contributing factor to the recession in the 1980s was the savings and loan crisis, which tightened credit. The factors that shaped the savings and loan crisis no longer exist.”
Recent political events involving Saudi Arabia and Iran could impact the industry. Sitton said a lift on the trade embargo against Iran may be suspended, may cause a new trade embargo or “some sort of instability” in the Middle East again.
“That has a lot of potential if that were to bubble up that could cause oil prices to go up quite substantially,” he said. “You just don’t know what’s going to happen there, but that’s something to watch as well.”
Regarding the price of gas, Sitton said gasoline and oil prices move somewhat independently.
“You can see really low oil prices and high gasoline prices if there is a shortage of global refined products on the market,” he said. “You can also see relatively high oil prices and oil and gasoline prices if refineries are running at a loss.”
Sitton said right now refineries are running fairly profitably due to a 15-year “tough business environment” and there is not a lot of excess refining capacity in operation today.
In comparison, he said 25 percent of the refining infrastructure in Europe is not running right now, which means there is less refining infrastructure and a bigger margin on refined projects.
While gasoline and oil prices are independent, if the price of oil goes from $35 a barrel up to $70 he said gasoline prices will go up.
But, when the price of oil is high, that also means companies are doing more drilling and building more pipelines – all of the things that cause an industry to grow.
“That’s what creates all the high paying jobs,” Sitton said. “When oil prices are down in the ‘30s where they are today, service companies are having huge layoffs, oil companies aren’t drilling as much.
“Two-thirds of the oil rigs that were running just a year and a half ago are not running right now,” he said. “They are just sitting idle so that means you don’t need the drilling crews, you don’t need the production teams, so all of those guys are either sitting at home or have been laid off.”
When the price of oil cut in half more than 200,000 workers lost their job nationwide.
“(In Texas), everyone has had really major layoffs because without those high prices there’s nothing to validate doing new investment and to continue drilling,” Sitton said. “When oil prices go up they will try to hire all those people back and put them back into crews, working rigs, and everything else and you will see jobs come back very quickly.”
NSRW General Meeting
It was the largest turnout for the NSRW at the Bentwater Country Club with 91 attendees eager to hear from Sitton.
Sitton shared his background as a native Texan, raised by teachers, who graduated with a Mechanical Engineering degree from Texas A&M.
Sitton spent his entire career in the energy industry and in 2006 founded an engineering and technology company, Pinnacle Advanced Reliability Technologies, to help make the world’s most complicated facilities more reliable.
PinnacleART has been recognized by Inc. magazine as one of the fastest growing privately held business in the world and employs over 500 people.
In 2014, Ryan was elected to the Texas Railroad Commission, and is the first engineer in 50 years to serve as a railroad commissioner.
Sitton provided insight by sharing case experiences, such as a solid waste facility he once oversaw, and the reasons behind the decisions he made to keep the facility open.
Despite community concerns at the time, he emphasized his role was to keep it safe. If the company did not operate safely he told the residents he would shut it down.
Since then the company has been successful, he said.
“Getting an opportunity to serve a community like that is deeply rewarding…,” Sitton said. “I feel like those of us who have real knowledge, real expertise can do a job like that. It’s not just to serve that community but it protects opportunity for all of them.”
At the end of the presentation Sitton answered questions from fracking to recent crude oil export legislation from the audience.
Pauline Turner of the NSRW called the presentation “excellent” and said his story provided a different perspective into the decisions he made.
“His whole speech explained all the different parts,” Turner said. “He spoke clearly and made an impression. He’s a fantastic speaker.”