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Coronavirus Pandemic Threatens Oil Industry with Collapse

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The oil industry is facing an existential threat now that the world’ economy has come to a sudden halt in an effort to contain a deadly coronavirus pandemic that has already sickened more than 1 million people and killed tens of thousands across the globe.

Oil Price Collapse Worst Since Great Depression

With dozens of countries ordering their citizens to shelter-in-place, gas stations are empty and airplanes are sitting idle on runways.  Refineries have cut production, wells have been shut in, and energy companies are running out of room to store the excess.

As demand collapsed, oil hovered just above $20.00 per barrel early last week – an 18-year low. While word that Saudi Arabia and Russia might be open to cutting production caused the market to rally a bit on Friday, prices are still down about 50% from the beginning of the year.

The industry hasn’t faced such a crisis since the early 1930s, when the discovery of massive fields in East Texas and the economic destruction of the Great Depression caused prices to collapse in way that – until now – had never been repeated.

“Basically, most of the world is standing still,” one oil historian told The Houston Chronicle. “And when the world stands still, it uses a lot less oil.”

Some Oil Markets Could See Negative Prices

Unfortunately, the downturn in the oil market is far from over, with many analysts warning that prices could even head into negative territory.

According to the Chronicle, that’s already happening in Wyoming, where crude has fallen to $-.19 per barrel, forcing drillers to pay others to take oil off their hands. Meanwhile, in the Permian Basin, certain grades are trading below $6 per barrel.

“What we are seeing is energy prices are trading lower than they were in the lowest point of the energy downturn (of the 1980s),” said an economist for the Greater Houston Partnership. “This is going to be somewhere between the Great Recession and the oil bust we had in the 80s.”

Houston Metro Region Stands to Lose 150,000+ Jobs

To call this bad news for the Texas economy would be an understatement.  In fact, according to the Chronicle, the Houston Metro Region alone could shed more than 150,000 jobs this year because of coronavirus-related shutdowns and the collapse in oil prices.

Just weeks into the crisis, Haliburton had already announced it would furlough 3,500 employees in Houston, Tenaris laid off 900 nationwide, and Apache laid off 85 in Midland.

The catastrophic drop in prices even has the Texas Railroad Commission considering limits on production – something that hasn’t been done since the 1970s.

Coronavirus Could Change the Oil Industry Forever

There’s no way to predict when the oil market might finally recover.

During normal economic downturns, many consumers who hold on to their jobs take advantage of low gasoline prices by running more trucks or taking that long wished for vacation. Eventually, that activity helps prices to stabilize and then rebound. But with the coronavirus pandemic keeping just about everyone at home, that’s unlikely to happen – at least in the foreseeable future.

Should oil remain under $30 per barrel for very long, many energy companies – especially smaller, independent outfits — won’t be able to raise the operating capital they need to stay in business.

“There will still be an energy industry, but it will look very different,” one bankruptcy advisor told the Chronicle. “There will only be the oil majors and a few well-capitalized and well-run independents.”

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Our Oilfield Accident Lawyers are monitoring the impact of the coronavirus pandemic across Texas and continue to represent injured workers and their families.

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