Today’s collapse of world oil prices has sent the Louisiana energy sector into a tailspin, threatening to shutter hundreds of production and service companies and put tens of thousands of people out of work.
Throughout the coronavirus crisis, the declining price of oil has been a worrisome sideshow. Today, it became a moment in history, when oil futures prices fell into negative territory for the first time ever.
Local industry experts say it’s a situation that is not sustainable for the state, the country or the rest of the world.
“You have to get demand back up,” says Gifford Briggs, president of the Louisiana Oil and Gas Association, which has some 450 members. “You’re going to see the total collapse of U.S. oil production. We’ve got to follow the president’s plan to reopen the economy, we’ve got to be a global leader in this and we need other countries to follow suit.”
Crude prices were softening even before the spread of COVID-19 became a global pandemic. Then, Russia and Saudi Arabia got into an oil price war, dumping crude on the market and refusing to curb production.
Though they have since agreed to trim production by 10 million barrels per day, that’s too little to make much difference given the reduction on the demand side now that people are staying home and not driving or traveling by air.
Exacerbating the problem is that global storage capacity for excess oil is expected to run out by mid-May, if not sooner. To top it off, today’s futures prices were particularly bad because the contract for May delivery closes tomorrow, which can exacerbate price swings in a volatile market.
“As long as we’re not driving our cars and getting in airplanes there’s nothing we can do,” Briggs says. “All we can do is take steps to minimize the financial impacts of what we have, seek severance tax relief and end government-sponsored coastal lawsuits.”
Focusing on the demand side of the equation is important, according to LSU Center for Energy Studies Executive Director David Dismukes, who says once commercial activity increases and people are driving and flying more, prices will go back up.
“The best option in the near term is to try to get the economy going and trim the demand losses,” he says. “The sooner the economy goes, the better for the price of oil.”
But Dismukes is not overly optimistic that will happen anytime soon. Even if the American economy as a whole rebounds fairly quickly, he’s worried about certain sectors of the economy, like airlines and travel, and other countries with weaker economies.
“This is a real pervasive global issue and it is going to take some time to fix,” he says. “I would agree in a big picture sense that the sooner we can get all the wheels turning, the faster we can get a solution to help the energy problem but I am of the school of thought that there are some major changes going on to the way we operate and we just don’t know what they are yet.”
