July 15, 2015

Iran, #oilprices and the Texas budget

Now that the US and partners have finally gotten Iran to sign off on a nuclear energy non-proliferation deal, a big question in Texas is: "What does this mean for oil prices?" A related question, for those knowledgeable, is "What might this mean for the Texas budget?"

Consumers everywhere, of course, wonder about gas prices, so to that first.

Tom Kloza of OPIS is predicting the return of $2 gas by the end of the year. If he's right about that — and I'll give 2-1 odds in his favor — West Texas Intermediate oil will  be at or below $60. It's not just any Iranian oil that will come on market this year, as not a lot is projected to do so before 2016. It's that any additional oil, on top of continued overproduction and a Chinese slowdown, will drive down prices. Beyond that, the Iran deal means more stability in the Middle East, itself worth a couple of dollars a barrel.

And, thus, we've covered oil prices as well as gas prices.

As for next year?

More oil from Iran WILL come online in 2016 and beyond. In turn, that means WTI probably doesn't get above $60 on a regular basis next year.

So, add the Texas budget to the list of "losers," even as this is yet another argument for an every-year legislature in the Pointy Abandoned Object State. An every-year legislature could, even with a two-year budgeting cycle, still meet on a shorter session to tweak the state's budget.

But, this is Texas. Who are we kidding about having an actually efficient government?

Beyond that Comptroller Glenn Hegar is surely still wearing rose-colored glasses about the state budget.

As he should not be doing at all.

At the Houston Chronicle, Chris Tomlinson reports that major players in the oil patch are engaging in major write-downs, and minor players are trying — not always successfully — to avoid bankruptcy.