Exxon Mobil’s decision to invest billions of dollars to join “other oil firms in a race to build up drilling portfolios in West Texas and New Mexico” is good news for the Land of Enchantment’s fiscal condition.
As the above graph indicates, the price of a barrel of West Texas Intermediate is on the rise — up about 30 percent since the start of August. So in the short term, production in New Mexico, which peaked in May 2015, will rebound.
But for how long? Some speculate that higher oil prices are here to stay. That belief surely emboldens New Mexico’s leftists, who have no intention of implementing a long-overdue right-sizing of the state’s employees, agencies, and assets.
On the other hand, there are plenty of signs that the price run-up might stall, or even reverse course. In late November, OPEC did reach a deal to cut production, and it’s certainly had an impact. But as The Wall Street Journal noted, member countries “have a spotty record of enforcing their own agreements,” and there’s “no legally binding way to deter … cheating.” In addition, Libya is exempt from the deal, and earlier this month, the Journal reported that the nation has hiked its production “to a three-year high of 708,000 barrels a day … after having fallen to less than 200,000 barrels a day last year.”
Outside OPEC, the situation is even more chaotic. Not long after OPEC’s deal was reached, 11 non-members agreed to throttle back their pumping as well. But can Russia be trusted? Can Mexico? And what about the producers who have no intention of cuts? Earlier today, the International Energy Agency noted that “long-planned projects are coming on stream in Brazil and Canada and their combined production will rise by 415 kb/d this year.”
Speculating on the future of any commodity is a dicey business. But there appears to be at least as much reason to expect stability, or even decline, in the price of oil as there is to believe that another era of $100-per-barrel is right around the corner. New Mexico’s legislators and governor should budget accordingly.