U.S., state data illustrate energy industry's pain
Crude oil production in the U.S. fell by about 2 million barrels per day in May, data published by the U.S. Energy Information this month reports.
Agency officials say that’s the largest drop that has been observed in a single month since January 1980.
May’s decline, the report continues, marks a sixth consecutive monthly decrease in crude oil production in the United States.
What started as a gradual decline turned into a more significant one after the March 2020 declaration of a national emergency because of COVID-19.
Efforts to blunt its spread by temporarily closing the economy, the report observed, changed energy supply and demand patterns as the price of West Texas Intermediate crude dropped from $58 dollars per barrel in January 2020 to $17 a barrel in April.
In May, its average price rebounded to $29 a barrel, but not production.
The agency states U.S. production fell by 16.6% that month.
In Oklahoma, oil output fell by about 150,000 barrels per day during the month, setting a record for a monthly decline in the Sooner State, the agency noted.
The report also notes that natural gas production across the country also fell by a record 5.9 billion cubic feet per day in May.
In Oklahoma, the average daily production of the fuel declined by about 800 million cubic feet.
Those numbers help illustrate the ongoing pain being felt by the state’s oil and gas industry, the Petroleum Alliance reports.
This week, the alliance and partners BITCO Insurance and the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University issued an Oklahoma Energy Index report that shows the industry contracted again in July.
The report states that exploration and production companies’ payrolls fell to just over 34,000 jobs during the month, a level of employment that hasn’t been that small since 2005.
Over the course of the month, Oklahoma averaged only 10 active rigs in any given week as new drilling all but stopped in the state.
“To put this in context, the last two bust cycles saw a 2009 low in rig activity of 75 and a 2016 low of 57 rigs,” said Russell Evans, executive director of the institute. “The abrupt stop in activity is without precedent in recent price cycles.”
Evans said market investors appear to have adopted a broad, false sense of security that the worst effects of the pandemic and resulting economic slowdown are behind the nation.
"This is not the case,” said Evans. “The effects of the pandemic coupled with the economic repercussions of early and aggressive health policy will move the U.S. economy into a lengthy recession.”
Brook A. Simmons, president of the alliance, said the state’s energy industry doesn’t expect to see a “V-shaped” recovery.
“We’ve not been Pollyannaish about the challenges our industry faces,” Simmons said. “While we have recently seen product demand increases and perhaps the floor with regard to rig activity, we’ve known ... Oklahoma still must confront the reality of the looming economic recession.”
Simmons said a rebalanced global energy market first will take excess production from overseas to meet increased demands and then take it from the Permian Basin.
A significant increase in net demand for crude oil would be needed “to move prices back to a range that supports robust Oklahoma oilfield activity,” Simmons said.
The alliance’s index uses May 2000 (which was assigned an index number of 100) as a base period to compare against monthly readings of rig counts, energy employment levels for production and support companies and monthly average spot prices for natural gas and oil.
Both oil and natural gas spot prices as well as both production and support employment were down in July at least 30% from a year ago.
“During the recovery from the 2015-2016 bust we noted that production employment would not return to the 2014 high of 65,000 jobs,” said Crystal Laux, south regional manager with BITCO.
“Production employment now stands at 34,000 jobs and seems unlikely to return even to 2018 levels,” Laux continued. “In the years ahead, we may find that each ensuing recovery, while welcomed for the economic relief that it brings, is insufficient to fully replace the activity lost in the preceding bust.”