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OPEC decision good news for Oklahoma

November 30, 2016
Reports that OPEC has agreed to its first reduction in crude oil production since 2008 is good news for Oklahoma, Oklahoma Independent Petroleum Association President Mike Terry said today.

In the United States, oil and natural gas producers work in a free market. When commodity prices are high, producers are encouraged to drill new wells. As prices fall, the number of active drilling rigs falls with it. Ebbs and flows of oil and gas prices come with the free market, but the goal is to find a happy medium — a selling price for American crude oil that encourages investment in exploration and production but also gives consumers affordable energy.

Throughout the majority of the world, however, production is driven by national companies. Countries use these state-run oil companies to create wealth that can be directed as officials see fit. The ultimate motive is not economic but political, and political decisions can distort the performance of markets.

For the past two years, Oklahoma oil and natural gas producers have slowed production because depressed commodity prices limited the financial resources necessary to continue drilling new wells. The same is not true for OPEC countries, which instituted a “pump-at-will” policy in 2014 in hopes of eliminating American competition in energy markets. Now, OPEC has changed course, agreeing to cut production in hopes of boosting floundering crude oil prices by pushing inventories of crude oil held in storage down.

“The move is good news for Oklahoma, where the oil and natural gas industry is the backbone of the state’s economy,” Terry said. “Independent oil and natural gas production in Oklahoma accounts for one out of every six jobs, half of the state’s non-farm earnings and approximately 25 percent of all taxes paid in the state, and improved oil and natural gas prices resulting from OPEC’s production cut will be felt throughout the Oklahoma economy.”

Founded in 1955, the OIPA is the state’s largest oil and gas advocacy group, representing more than 2,500 members in the crude oil and natural gas exploration/production industry or affiliated businesses.

 
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