Oil prices bumped up last week by as much as 19 percent before falling yesterday, as Chinese demand began to grow again now that its’ factories and economy are reopening.
That buoyed share prices in the oil and oil services sectors. Also, heightened tensions between the U.S. and Iran sharpened the risk of the Middle East oil region being the center of armed conflict. The euphoria faded, however, as the enduring reality of scant demand and massive oversupplies reasserted itself over the weekend.
It is estimated should oil demand remain weak, storage facilities will max out within 90 days.
U.S. Oil Industry’s Collapse Ripples Across States
The fracking revolution expanded the heft of the U.S. oil industry beyond its conventional centers in Louisiana, Texas, and Oklahoma – and the pain of the industry’s collapse is spread just as wide.
States that quickly came to depend on the financial windfalls of oil and gas tax cash, and the jobs that came with them, include North Dakota, Ohio, Pennsylvania, West Virginia, and Wyoming.
For example, 15.3 percent of Alaska’s GDP flows from oil. North Dakota takes 10.3 percent of its economic productivity from oil and gas. In Wyoming, the figure is 16.4 percent.
Now “it’s bleak in Wyoming,” said Pete Obermueller, president of the Petroleum Association of Wyoming.
During the week of 20 April, there were six drilling rigs working in the state, compared to 30 at this time last year.
Wyoming, with an extraction-based economy, was depending on steady oil sales to help it overcome weak natural gas prices and make a transition away from the coal industry, which has been decimated domestically by cheap fracked natural gas.
A late March survey of Louisiana’s oil and gas producers found many expecting to slash activities by as much as 70 percent by August, costing the state 24,000 jobs and as much as $2 billion in lost wages.
Since the survey, the price of U.S. oil has fallen from above $20 to below $12, a level last seen more than 20 years ago.
The state’s producers have “instructed their field people to begin shutting in production immediately,” said Gifford Briggs, president of the Louisiana Oil and Gas Association.
In Oklahoma, oilfield service companies such as Baker Hughes and Schlumberger already have laid off hundreds of laborers.
Demand for oil “is contracting two or three times as fast as supply,” said Bob McNally, president of oil consulting firm Rapidan Energy. He called the price collapse and global oversupply of oil that has filled all available storage containers a “brutal but efficient” way to “persuade producers to keep oil under the crust.”
The industry’s collapse ripples through other sectors of the economy, affecting spending and employment in retail, housing, autos, and banking, among others.
A Wichita State University study of the economic impact of Kansas’s oil industry calculated that every dollar earned by an oil worker meant almost $2 earned by workers in other fields; and that every job the oil industry gained or lost translated to three additional jobs created or erased in other sectors.
TREND FORECAST: Should tensions continue to escalate in the Middle East, so too will oil prices.
With the world transfixed on the coronavirus, barely reported are the acts of war and war talk in the region.
Over the past few weeks, Israel launched numerous airstrikes against targets in Syria. Yesterday’s strikes near the capital city of Damascus killed at least seven people.
It was also reported by Syrian state media that two U.S. soldiers are missing in action after the vehicle they were in was attacked. The Pentagon denies the claim.
In oil-rich Libya, civil war rages as the former CIA-backed Gen. Khalifa Hafter announced that his Libyan National Army (LNA), not the UN-anointed Government of National Accord (GNA), has a “popular mandate” to rule, and he will be taking over the country.
Little Speed Boats “Harass” U.S. War
On 15 April, six U.S. military warships patrolling the Persian Gulf near Iran, some 7,000 miles from America, were followed by a group of lightly armed Iranian speedboats.
In response, U.S. naval officials described as “dangerous and harassing approaches,” which included buzzing through spaces between the convoy and coming within ten yards of one of the ships.
For about an hour, the Iranian boats continued their maneuvers near the U.S. fleet, which was conducting a military exercise off the Iranian coast.
In response to the Iranian tactic, President Trump tweeted on 22 April: “I have instructed the United States Navy to shoot down and destroy any and all Iranian gunboats if they harass our ships at sea.”
The Vice Chairman of the Joints Chief of Staff, General John Hyten, supported President Trump’s threat, adding, “Well, I’ll just say that every capability that we deploy, every ship that deploys into harm’s way has the inherent right of self-defense… What that means is if we see a hostile act, if we see hostile intent, we have the right to respond up to and including lethal force.”
If tensions increase and military actions escalate, oil prices could sharply spike, possibly soaring above $80 per barrel for Brent Crude. Should they reach near or at that level, the high cost of oil in a rapidly declining world economy will push the global economy deeper into the “Greatest Depression.”
