MIDLAND – Oilfield experts will tell you it’s a nightmare coming true: a glut of available oil stocks with countries locked in a price war further fueled by a drop in public demand caused by the COVID-19 pandemic.
“Right now I’m paying people to take my oil," oil magnate Russell Gordy told a reporter for Bloomberg. "I don’t see an end to this.”
Gordy said he has never seen a bust like this. Producers are at a loss to combat the collapse in crude prices that has accompanied the coronavirus pandemic, sinking fortunes across Texas, the nation’s second-largest economy.
“From the ‘Energy Capital’ of Houston to the shale center of Midland, the Texas oil-and-gas sector is sinking fast, heightening the pain for the broader U.S. economy,” the Bloomberg report said. “The state’s sheer size – it accounts for 9% of total U.S. output – means the shock here will reverberate on a national level.”
Industry analysts say if the Texas economy can reopen soon it could build back the state’s GDP this quarter. But it also risks a false start if a spike in coronavirus cases occurs, resulting in the need for a second shutdown. That could result in a recession.
The oil industry has a profound impact on the national economy beyond just the Lone Star State. According to the Bloomberg report, related services account for about 70% of private-sector economic output in the state, potentially impacting manufacturing, health care, finance and technology.
Along with the pandemic, a price war between Saudi Arabia and Russia has resulted in a worldwide oil glut so big the U.S. is running out of storage for excess crude.
“This year’s drop is likely to cut into investment and employment,” the report concluded. “Texas alone may lose 1.3 million jobs by June, according to estimates by economists at Moody’s Analytics.”
Called the “Permian Basin,” the region from West Texas into New Mexico is the world’s largest shale oil field. It has made the U.S. the leader among global oil producers. With its refineries and ports, Texas oil exports account for about 20% of America’s total.
The report said a surge in U.S. oil production played an important role in recovery from the 2008 financial crisis and resulted in generating 169,000 new jobs across the country between 2010 and 2012.
That dominance now is threatened.
As of May 14, West Texas Intermediate crude was trading for $27 a barrel, down from an average of more than $50 last year.
