So what impact will the OPEC meeting that begins today have on the price of gas we pay at the pump, and the future of the now booming Texas shale oil industry?
Tom Tunstall, an economist at UTSA who studies the Eagle Ford Shale, told an Eagle Ford conference that OPEC would like to cut production to raise the tumbling price of oil, but Texas shale will be an unseen force at the table in Vienna at today's session.
"Saudi Arabia is paying attention to the shale fields, where for a long time they weren't," he told News Radio 1200 WOAI. "They thought it was an aberration, they thought it wasn't real, and obviously increasing U.S. domestic crude production has finally changed their minds."
The price of oil on the world market has tumbled in the past two months, experiencing the sharpest drop since oil futures began to be traded commodities in the 1980s. The reasons for that fall include the fact that the U.S., mainly Texas shale fields, continues to set new production records. The U.S. is now the largest producer of petroleum in the world, muscling out both Saudi Arabia and Russia, with much of that production coming from Texas.
The oil price was artificially inflated before sanctions against Iran kicked in last month, as traders failed to take into consideration the large number of exemptions granted to those sanctions. As a result, the world has an oversupply of oil today that Tunstall says is not likely to decrease even if OPEC does succeed in cutting production, and is able to enforce those cuts.
"If they are able to moderate production, then presumably we would see oil stabilize right where it is right now or perhaps go a little higher," he said. "But it is unlikely that we are going to see oil prices jump back up to $70 again or anything like that."
The Saudis have said they would like to see global oil prices back up to $70 or $80, but Tunstall says in order to make that happen,a major OPEC production cut would be needed, and he says OPEC nations, most of whom rely on oil as their only major source of government income, can't afford to do that.
"The only way they can get around that is with issuing debt on the markets or cutting back their budgets," Tunstall says, pointing out that could be socially damaging for many OPEC countries, because social spending would have to be cut.
There is also a concern by the Saudis that if they cut oil production too deeply, it could prompt the Trump Administration to change its tune, and start asking serious questions about the involvement of the Saudi Crown Prince in the murder of a Saudi journalist. The President has indicated that as long as the Saudis hold oil prices down, he will not get involved in the condemnation of the Saudis over the murder.
Tunstall says, ironically, a failure by OPEC to cut oil production might be more damaging to Texas than production cuts. He says the lower prices that would result, while good for drivers, could push Texas back into the position we were in in 2016, when oil prices dropped into the $28 range, pushing frackers out of business and leading to widespread layoffs, and cuts in the Texas state budget, which is highly dependent on oil prices.
He says while many fracking firms say they have cut their overhead to the point where they can remain profitable with oil prices in the $30 range, he doubts many companies could survive that large a downturn, largely due to costs which are not baked into that equation, like the costs of land, and pollution abatement programs.-