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Expert Dan Fine discusses future of oil, natural gas amid low prices and the coronavirus

Hannah Grover
Farmington Daily Times
A pump jack is seen in September 2012 off Road 6480 during sunset.

AZTEC — Two tweets sent by President Donald Trump on the morning of April 2 spurred optimism for an oil industry hit hard by a flood of oil from Saudi Arabia and Russia, driving down the price.

But Dan Fine, an energy researcher and associate director of the New Mexico Center for Energy Policy at New Mexico Tech, said he is skeptical that the president has a deal.

Four Corners Economic Development hosted a webinar April 2 during which Fine provided updates on current industry conditions and forecasts.

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Trump tweeted that he has spoken to the crown prince of Saudi Arabia as well as Russian President Vladimir Putin and expects those two countries will decrease oil output by 10 million barrels. His second tweet stated that the two countries could decrease output by 15 million barrels.

These Tweets come after oil prices fell by two-thirds in the first three months of the year.

President Donald Trump expressed hopes that Saudi Arabia and Russia may reduce oil production, which would help the industry.

Fine said Russia, which has been frustrated by some of the U.S. foreign policies including moves to sell oil to Belarus, is prepared to go six months to a year at the current low prices.

And Saudi Arabia previously tried a similar tactic of flooding the market with oil in 2014. 

“This is a second chance for them,” he said. “They’re not going to easily give this up.”

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Meanwhile, Fine said Saudi Arabia is poised to export $2 million barrels of oil in May. That would send the West Texas Intermediate price to $15 a barrel. The price of oil produced in the Permian Basin tends to be $7 lower than the WTI price.

The low prices could harm shale producers in the United States and lead to marginal wells shutting down, Fine warned.

Horses are seen near an oil storage facility in a file photo from May 22, 2014, near Nageezi, NM.

On top of the increased supply in oil, demand has been reduced due to the coronavirus pandemic. 

Some economists are projecting an increased demand for oil once the pandemic has passed, but Fine said it will likely only result in a short-lived surge in demand and will not result in the industry fully recovering.

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With the combination of increased oil output from Saudi Arabia and Russia and the virus, Fine said the demand for oil and refined products is moving toward zero. All the oil being produced is going into storage, and Fine said there are limited opportunities to store oil.

Meanwhile, he anticipates refineries will continue working while losing money because it is expensive to shut down.

Currently, Fine highlighted that gas at a station on U.S. Highway 550 in the Bernalillo area is selling for $1.31 a gallon.

A pumpjack operates in Farmington.

San Juan Basin 'in recession'

The San Juan Basin is now in a regional recession, Fine said.

But the low price of oil could be good news for the natural gas sector. As oil production decreases, so does the amount of associated natural gas that is being produced. The surplus of natural gas has been keeping prices low, and Fine said prices could increase if the oil-associated natural gas production declines.

Daniel Fine

"So my reading of it is gas is stable and could be the beneficiary in price, especially in a Permian nose dive in supply of oil," Fine said.

Still, Fine has declared that the San Juan Basin is in a regional economy recession and will need assistance from both the state and federal government. 

Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at hgrover@daily-times.com.

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