Amid the oil prices downturn and the COVID 19 stay-at-home orders, it is very encouraging to hear good news. Almost half a year into the outbreak of the coronavirus pandemic and the unprecedented shock to oil consumption, markets are reaching a turning point. It seems that the market is on a path towards recovery as the easing of stay-at-home restrictions along with production cuts drove WTI prices to $33, a two-month high. Though producers will have to maintain supply cuts into 2021 to sustain the upward trajectory in price, these numbers show that demand has begun to recover.
An active economy will drive demand up, trickling benefits towards employment and increased oil consumption. We look forward to recovery times and continue to serve all your H2S treating needs. Contact us to discuss how we can help you meet specs and get rid of H2S. The resiliency of our community and the quick response on the side of producers will eventually allow for increased output. Just as the US has swiftly cut production, it will also be ready to bounce back. Gasoline demand has started to show signs of recovery as states begin to reopen economies and road traffic picks up.
Logistics play a very important role in the economy. Ports can be seen as a thermometer of the economy and its health. The network of ports that serves the Gulf states region is an amazing collection of valuable infrastructure that enables states like Texas to be more competitive. As a stand-alone country, Texas would be the 10th largest economy in the world. The state’s GDP in 2019 was $1.887 trillion. We have a unique advantage, since seven Texas ports rank in the top 50 of all the US. Texas Gulf Coast ports handled more than 563 million tons of cargo in 2015, 22% of all US port tonnage.
By taking a look at the statistics published by the Greater Houston Port Bureau, we can learn about how our state’s economy is preparing for the future, but also about how our economy is behaving during this time. The organization encompasses over 220 member companies that collaborate to advance the port region for the benefit of all such as the Houston Ship Channel Expansion and the optimization of chemical tanker scheduling. Regional ports together not only support our economy, but portray how oil and gas production along with petrochemical plants shape the imports and exports through our ports. We notice a piece of good news that it is important to share here.
Figure 1.- Vessel Arrivals by Port (by Greater Houston Port Bureau)
The vessel arrivals have increased on a Year to Date basis as figure 1 shows. The increase in vessel arrivals not only shows the importance of the region as a market but the improvements in valuable infrastructure across the ports that serve it. While the global employment and economy have been hit with the impact of the COVID 19, we have had a twofold impact in our region given the oil glut and low prices. However, the improvements in port infrastructure have begun to show increased vessel traffic and we can appreciate significant increases in Brownsville, Corpus Christi and Freeport. Similarly, the port of Houston, which handles the largest amount of vessels, also increased the number of vessel arrivals. Overall, there is a 3.6% increase YTD for the greater Houston ports mirroring the busy dynamic of the region.
Though at the global level the United Nations Conference on Trade and Development (UNCTAD) points that 2019 showed a weak trade growth given trade tensions and protectionism, Texas has performed well. This might be related to the global supply chain restructuring towards regionalized trade flows. UNCTAD expected international maritime trade to expand at an average annual growth rate of 3.5 per cent over the 2019–2024 period, driven in particular by growth in containerized, dry bulk and gas cargoes before pandemic considerations. The fact that Texas grand total vessel arrivals growth amount to 3.6% YTD after being hit with COVID is encouraging.
Figure 2: Texas Crude Oil Exports
Shifting our attention to crude oil, we also find a positive note. Figure 2 shows the percentage increase of exports through time. Even during the start of the pandemic and accompanying lock-down, we can see that the exports have increased slightly. Since most producers have hedge protection, their operations have continued and exports remain strong as shown in the graph. This indicator is one of the leading indicators of Texas as a main crude oil supplier even during times of uncertainty and low prices.
There are more positive news in the industry. The Trump administration has granted royalty relief to several drilling companies producing oil and gas on federal lands in recent weeks, according to a government database, as the industry seeks help weathering low energy prices. In addition, ports continue to develop infrastructure to support local industry and increase competitiveness. The Port of Corpus Christi will have 17 million barrels of additional oil storage by August as record low commodity prices have producers desperate to find a place to store their crude until prices rise. Open seasons are still in play which allows producers and gatherers optionality for more paths to markets such as Oryx's launching for Delaware oil pipeline expansion.
The current cycle will pass and the resiliency that characterizes our industry and our people will create new approaches and technologies. Already the Permian Basin appears more resilient. Simultaneously, natural gas seems better positioned to navigate the coronavirus. The pandemic will create new opportunities in the midstream sector, particularly in natural gas-focused infrastructure. We continue to conduct research and develop the best products to serve you in your H2S treating needs. We offer our Pro line for H2S and mercaptan removal from crude oil and liquids as well as from natural gas. Reach out to us to discuss how we can help you get more for your assets.