Supply is up, and demand is down, thanks to the combination of the Saudi-Russia price war and a global pandemic. Crude oil prices have fallen to $20 per barrel in the last few weeks, an all-time low if you account for inflation.
People all over the country in our industry are hurting. Many are nervous about the future of Texas oil and the U.S. oil and gas sector, more broadly. Some experts are going as far as to say this is the end of our run in oil production.
However, these “experts” may have lost sight of several important truths. U.S. oil is resilient. We’ve recovered from major global crises in the past, and this will be no exception. We have the best people and the best technology in the world.
We will survive.
We must overcome the panic and volatility of today by holding fast to what helped us rise to the top of global oil in the last decade.
Recent headlines are painting a pessimistic view of reality that doesn’t capture the full story. Already, leaders across our country are adapting to the uncertainty of COVID-19 and the challenge of geopolitical dynamics.
Global energy demand will return to normal, and with it, the return of U.S. oil.
Global Demand Will Rebound
The current circumstances are overshadowing what was happening in global energy consumption over the last few years.
In 2019, global demand for petroleum and liquid fuels averaged over 100 million barrels per day, with growth expected to continue. By 2050, the EIA predicts worldwide energy consumption will increase by 50%. Together, coal, oil, and gas will still account for nearly three-quarters of total energy demand.
Yes, a recent forecast from the EIA projected reduced demand in the first and second quarters of this year. However, these stats do not detract from the fact that global demand was at its highest level ever last year. We will return to this trajectory once markets stabilize and the COVID-19 pandemic passes.
U.S. Oil and Gas Will Adapt
U.S. oil has faced many obstacles in the past.
Prices plummeted back in 2014 when Saudi tried to drown American shale in excess supply. We consolidated, cut back on expenses, and started running leaner operators. Within a few years, U.S. shale producers were generating positive cash flow at $30 per barrel.
After the Great Recession of 2008, per barrel prices rose from $50 to $130 in a little over two years as demand and production recovered. Going all of the way back to the last century, U.S. oil has been on a rapid upward trajectory after the Asian financial crisis 1997.
Today, we’re producing more oil than ever with fewer rigs. In the last five years, the U.S. became the top producer of shale oil in the world. Our dependency on foreign imports dropped significantly, all thanks to ongoing ingenuity and innovation.
Undoubtedly, U.S. oil is hurting right now. But, leaders are already finding savvy and sacrificial ways to survive during this time.
Liberty Oilfield Services’ entire executive team unanimously agreed to accept 30% pay cuts beginning April 1st. Basic Energy Services is consolidating regional operations and centralizing certain processes. Noble Energy is letting employees use PTO before furlough statuses kick in.
Although layoffs are inevitable in situations like the present, many leaders are doing all they can to protect their staff through what will be a temporary setback. For those who need additional encouragement, simply look at the last 25 years of U.S. oil.
Another Trial We Will Overcome Together
There is no clear solution or silver bullet that will alleviate the pain that so many in the oil and gas space are experiencing today.
At WellAware, we are praying for our friends and leaders who are having to navigate these turbulent waters. We are praying for those who have already lost their jobs and those who will in the coming months.
At the same time, we are expectant that the U.S. oil industry will endure as it always has in the past. And we believe in God’s provision for His people.
I encourage all of us to stand united and resolute during this time. We all have a role to play in making sure that U.S. oil emerges stronger than ever from this historically painful “1-2 punch.” Operators, service providers, government agencies, banks, and consumers each have the potential to make a positive impact, big or small.
Tough times call for tougher responses. We have a chance to show the world, again, the strength and unity of the U.S. oil industry.
If there is any way we can help, you know how to reach us.
