Oil production, jobs in Texas expected to be cut after trading drops into negative

Texas

AUSTIN (Nexstar) — American oil prices crashed into negative territory for the first time in history on Monday, and jobs are expected to be on the chopping block because of it.

The key U.S. oil benchmark, the West Texas Intermediate, dropped so low that the cost to have a barrel of U.S. crude oil delivered in May would be -$37.63.

When oil producer Allan Frizzell checked the markets earlier in the day, that price was even lower.

“That means that if there things were happening in real time, I guess we will be paying somebody $50 a barrel to come get our oil out of our tanks,” Frizzell said. “And so that’s that’s where we are today. It’s unbelievable.”

Frizzell, vice president of Enrich Oil Corps, said the Abilene area has already experienced job losses recently, and this drop could mean more are on the way — especially for the support and service industry.

“Just in Abilene, that operates the supplies, probably 25 jobs [for] every drilling rig as it continues,” Frizzell explained. “Our rig count is down to almost nothing, and maybe one or two rigs are operating, which hurts me to say that. Because that means that we’ve gotten from — just in this area, though — 10 or 12 rigs operating to one or two rigs operating. And that’s a loss of 250, 300 jobs, right there.”

The prices crashed in part because the coronavirus pandemic has brought travel to a halt, bringing demand much lower than suppliers could have predicted.

State Sen. Pete Flores the Pleasanton Republican who represents a stretch of West Texas from San Antonio to El Paso, explained there were also international factors. OPEC recently agreed to cut oil production around the world by 10 million barrels.

“Of course, having a pandemic combined with the Russians and the Saudis that you know, engaging in their economic activities in oil and gas as a prelude, and then, you know, this pandemic excels providing for a significant reduction in demand for the product across the board it was a big recipe for disaster,” Flores said.

Texas Comptroller Glen Hegar said the unprecedented crash is likely indicative of how little storage capacity is available for the unused barrels.

“While this unprecedented volatility is concerning, the greater impact to Texas will come if demand remains historically low for a prolonged period of time and supply gluts continue to strain storage capacity,” Hegar said in a statement Monday.

State Senator Kel Seliger represents the Permian Basin and the Panhandle in the state’s upper chamber.

“It’s a catastrophe,” he said Monday afternoon.

“The problem is, is so many people are losing their jobs in the oil field,” Seliger said. “Some of those jobs won’t come back.”

“There will be companies that won’t be here a year from now or two years from now, good ones and good employers, and it will have some lasting effect because it always does,” he added.

Seliger suggested state leaders look to other sources of revenue to ensure Texas does not put too many eggs into one basket.

“Even when oil prices are great or cattle prices are great, It’s always a good idea to diversify your economy,” he stated.

While the prices for the May contracts ended below zero, so far, the prices in June are still positive.

“May contracts traded well into negative territory as the market prepares to shift focus to June contracts. While down somewhat, June contracts traded in a relatively stable range,” Hegar said these prices will continue to be monitored to decide on a reduction in the state’s revenue forecast. 

Producers are concerned it could take months to recover.

“I think it’s gonna take about…three months, six months. And then that’s with the return to a healthy working vibrant economy, transportation and use of more electricity and the use of the oil and around the world,” Frizzell said.

Oil producers are now left to run through the possible scenarios that could break them even.

“I can see a time in the not too distant future where energy demand starts to come back more strongly,” Texas Alliance of Energy Producers executive vice president Karr Ingham said. “And at that time, production will be pretty sharply on the way down so it’s possible that we may see a growing demand scenario kind of intersect with a declining supply scenario and push prices up or sharply.

“Well, that’s the day I’m looking forward to,” Ingham said. “And I hope it’s not that far off.”

State Representative Brooks Landgraf, R-Odessa, shared a message for his constituents Monday evening, highlighting the reliance of the Texas economy on the oil industry.

“We’re in rough waters, but we’ll be back. It’s just a matter of time,” he tweeted. “Tough times don’t last, but tough people do.”

“Oil patch folks don’t normally ask for much,” he said. “After a brutal day like today (and tough days ahead), I hope that we all include in our prayers every family whose livelihood comes from under the dirt and in the shales of places like the Permian Basin.”

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