Petroleum index has jumped 28.5 percent in last 13 months

Petroleum Index Natural Gas Demand

As natural gas prices have fluctuated, crude prices broke out of their doldrums beginning in October, helping spur a continued increase in oil field activity and demand. That rise helped spur continued growth in the Texas Permian Basin Petroleum Index, which posted its 13th consecutive month of increase and now stands 28.5 percent higher than October 2016 levels.

“Even at that, the Texas Permian Basin Petroleum Index remains down by some 29 percent compared to an all-time peak achieved in November 2014,” said Karr Ingham, the Amarillo economist who prepares the Petroleum Index.

The Petroleum Index will “probably” return to that former peak, but Ingham pointed out that the region’s oil and gas industry is facing a different set of circumstances than three years ago. Three years ago, crude prices were significantly higher and the rig count was higher. The amount of oil the industry has been able to produce utilizing pad drilling and improved completions is a game-changer that will push growth into 2018, he said.

“The creeping question for crude oil in 2018 is demand,” said Ingham. “There’s a sense on the part of some that demand is coming around strong enough to push prices higher in 2018. Globally, it’s hard to get a grip on demand. But now, at least, demand is entering the discussion.”

Until recently, crude supplies had dominated the discussion, he said. “The reason demand is entering the discussion is it’s on the way up. A better demand picture is one way to solve supply issues,” he said.

Cuts by the members of the Organization of Petroleum Exporting Countries, along with some non-OPEC nations, have been extended through the end of 2018 and for the most part, are being observed, he said. But at the same time, U.S. producers have continued increasing output.

OPEC cuts removed 1.8 million barrels per day from the market, but U.S. producers have not only replaced half that amount but are on the way to filling in even more of that gap and continuing to grow production, he said. Expectations are the U.S. will reach a record high of 10 million barrels a day next year. If that’s the case, “we need a better demand scenario,” Ingham said.

But, he added, “We don’t even know how these scenarios will play out. The notion is when prices are high, consumers move to more efficiency. The question was, would consumers keep moving in that direction when prices are low, and the answer is not so much. When prices crashed, consumers went right back (to their SUVs). It’s important to know what consumers, as a huge class, will do. But consumer behavior and what we think we know about it is often proven not to be the case. And, actually, that’s pretty bullish for oil. If they can afford it, typically they’ll spend it.”

“This discussion about increasing demand is key to the outcome in 2018,” said Ingham. “But I feel better about the outcome than I did even a month ago.”

Through September and October, crude prices had been stuck in a narrow trading range and didn’t indicate any movement outside that range. But prices added about $2 a barrel from September to October, averaging $48.06 per barrel, up 3.8 percent from $46.31 last October. Prices year-to-date are averaging $46.05, up 19 percent from $38.70 in the first 10 months of 2016. Ingham noted that prices have continued to move higher.

Oil field employment also continued to move higher alongside prices, rising by about 5,600 jobs or 21.1 percent in October over last October and by almost 4,000 jobs, or 14.6 percent, so far this year compared to last year.

That bump in oil prices was enough to stimulate the rig count, which stayed at an average 314 rigs in September and October, drifting down from an average 318 rigs in August, and Ingham predicted the November average will be even higher. The October rig count is 81.5 percent higher than the October 2016 average of 173 and the year-to-date average of 291 is 97.8 percent higher than the 147 averaged in the same period of last year.

The Railroad Commission issued 581 drilling permits in October, up 3.9 percent from 559 last October. Through the first 10 months of 2017, the commission has issued 6,131 permits, up 62.3 percent from 3,778 a year ago.

Producers reported 141 oil well completions in October, down 42 percent from 243 last October. Producers have completed 2,770 wells so far this year, down 26.2 percent from the 3,755 reported a year ago.

The rise in productivity continues to boost oil production volumes, which in October were 10.5 percent higher than last October and so far this year is 9.8 percent higher than a year ago.

Natural gas prices dropped 8.1 percent to average $2.5` per Mcf in October compared to $2.73 last October. But prices so far this year have risen 21.8 percent to average $2.72, up from $2.23 last year.

Producers reported 17 natural gas completions in October, up 112.5 percent from eight last October. Producers have completed 125 natural gas wells so far this year, down 26.5 percent from the 170 reported in 2016.

Natural gas production volumes are 10.6 percent higher than last October and are 10.5 percent higher so far in 2017 over 2016 levels.

Reference:  The Texas Permian Basin Petroleum Index, created in the late-1990s as a part of a general economic analysis package for the Midland-Odessa metro area, a partnership effort of the Midland Reporter-Telegram, the Midland Chamber of Commerce, and what was then First American Bank.  The Texas Permian Basin Petroleum Index is thusly named because it includes only Texas numbers and does not cross over into New Mexico.

Compiled and Published by GIB KNIGHT

Gib Knight is a private oil and gas investor and consultant, providing clients advanced analytics and building innovative visual business intelligence solutions to visualize the results, across a broad spectrum of regulatory filings and production data in Oklahoma and Texas. He is the founder of, an online resource designed for mineral owners in Oklahoma.


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