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Energy Update - July 2017

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July 1, 2017

The number of drilling rigs at work in Texas rose to a count of 460, significantly higher than last year but only up on last month, according to oilfield services firm Baker Hughes. Nationally, there were 941 rigs at work, up from 908 at this time last month. Overall, US crude production remains steady around 9.35 million barrels/day.

The price of oil slipped throughout June amid a global supply glut and lower-than-expected demand. An OPEC-Russia agreement to lower production and increases prices seems to have floundered among political disagreements and continued strong production from non-OPEC regions, particularly the United States.

The oil price slump is middling news for the Texas Economy. Many analysts expected oil prices to rebound this year, increasing drilling activity in Texas. Instead, economic growth has slowed and unemployment in Texas has risen to 5.0%, slightly above the national average. Prolonged low prices will have a negative impact on the Texas economy and public revenue. However, wind and solar energy continue to thrive despite the cheap competition. Massive new wind projects have helped pushed the average on-peak energy price set by ERCOT by 55% and wind developers are continuing to kick-off big new projects across the state. 

In Washington, fallout continues from President Trump's decision to withdraw from the Paris Climate Accord. The administration is aggressively moving to unwind climate change programs at the Environmental Protection Agency and Department of Energy – in accordance with the President's oft-tweeted assertion that the dramatic rise in global temperatures is a "hoax." Meanwhile, levels of atmospheric carbon dioxide measured this year are higher than expected, feeding worries among scientists that warming will accelerate as natural "sponges" like rainforests are no longer effective at absorbing carbon.

Across the world, 81-year-old King Salman of Saudi Arabia shook up the line of succession, declaring his 31-year-old son Prince Mohammad bin Salman heir to the Saudi throne. This could have big implications for international oil and gas markets – the young Prince Salman has been pushing a massive proposed sale of 5% of Saudi Aramco, Saudi Arabia's state-owned oil and gas company. Aramco is the world's largest oil company by revenue, and the sale of 5% would be the biggest IPO in history.