Oil Goes Negative Amid Coronavirus Pandemic, Raising Economic Fears in Texas and Louisiana
The global coronavirus pandemic continues to wreak havoc on the nation’s oil market, adding to growing economic fears in Texas and Louisiana.
West Texas Intermediate Crude Closed at -$37.63 a Barrell
Oil prices have been falling dramatically ever since nearly 200 nations around the world began ordering citizens to shelter-in-place in a desperate bid to slow the spread of COVID-19, the novel coronavirus.
With energy demand at an all-time low, rig counts were already down in the Permian Basin and elsewhere. Then yesterday saw futures in West Texas Intermediate Crude for May delivery hit a milestone never seen before – they went negative, closing at -37.63 per barrel. That means drillers are being forced to pay others to take oil off their hands.
“The negative price is only for the U.S.,” one industry insider told the Midland-Reporter Telegram. “The reason is refiners. They told us a month ago we’re not consuming enough gasoline. A half-dozen refiners have shut down, they’re not producing any gasoline because there’s nowhere for it to go. Other refineries have reduced operations.”
Thousands of Oil Industry Jobs at Risk in Texas and Louisiana
With more and more oil companies announcing layoffs and furloughs, falling prices have already hit the Texas economy hard. In fact, more than 1 million workers across the state filed for unemployment in just the past four weeks, and some experts believe the Texas unemployment rate is now on track to hit 10% — a record.
“Our single disadvantage with this relative to America as a whole is our huge employment in oil and gas,” Cullum Clark, director of the George W. Bush Institute’s Economic Growth Initiative at Southern Methodist University, told The Texas Tribune. “Essentially the whole industry is reeling.”
Things aren’t much better across the border in Louisiana, where numerous refineries have already cut production or closed down entirely. Now there’s real concern that thousands of offshore drilling jobs vital to Louisiana’s economy could disappear as well.
“That’s over $3 billion in wages and these are going to be the people hit the hardest, Louisiana is not in a position where we can lose those type of revenues,” Louisiana Oil and Gas president Gifford Briggs told WVUE-TV.
Risk of Oil Company Bankruptcies Rise with Price Collapse
Monday’s historic crash has also increased fears that collapsing oil prices will drive many companies to bankruptcy, especially those that borrowed heavily during the good times and are now at risk of defaulting on their loans.
“There’s a real chance these businesses that have been passed down for generations and generations may not be able to weather the storm,” Briggs noted.
On April 2nd, Colorado-based Whiting Petroleum – a major producer in Wyoming and North Dakota – became the first industry giant to file for Chapter 11 bankruptcy. With others, including Noble Energy, Halliburton, Marathon Oil, and Occidental, each losing more than 2/3rds of their market value in recent weeks, it’s unlikely to be the last.
When Will Oil Markets Stabilize?
Right now, many are hoping Monday’s oil market collapse was a fluke. Futures in West Texas Intermediate for June delivery were only off about 10% yesterday, closing at $22 a barrel. If the pandemic ebbs and demand begins to rebound, chances are good that futures will remain in positive territory.
Cuts in production and purchases by the federal government’s strategic oil reserve could also help stabilize the market in the coming months.
“This sounds like a catastrophic event, but I would expect it’s not gonna last more than a week,” said Eric Smith with Tulane’s Energy Institute. “We’ll figure out what to do with some of the oil and new contracts coming into play, don’t forget we use about 20 million barrels a day in crude oil and will use up some of the inventory that will make space for other crude in place, so I wouldn’t go out and sell your house and car tomorrow.”
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