When most people see cheap prices at the gas pump, they only think of how it benefits their wallet. Full Measure correspondent Scott Thuman notes gas prices are the lowest since 2009, but there’s a price to pay for saving at the pump.
“Gas prices in the U.S. are averaging $1.80 a gallon, more than a dollar less from the peak last year,” says Thuman. “In many American households, cheaper gas goes a long way toward balancing the family budget; but for hundreds of thousands of families tied to the industry, they’re paying a high price for low-cost oil.”
The gauges at the gas pump are spinning lower and lower. Current prices are under $2 a gallon in most states. The jaw-dropping cheap prices even became a major bragging point in President Obama’s recent state of the union address. “Gas under two bucks a gallon ain’t bad either,” the president quipped.
“Two bucks a gallon ain’t bad if you’re buying gasoline,” says Kevin Book. “Two bucks a gallon is terrible news if the well that you worked on was engineered to break even when gasoline prices were three bucks a gallon.”
Kevin Book is the managing director of Clearview Energy Partners, a Washington D.C.-based research firm providing energy facts to investors. Book says while most Americans’ wallets may feel fatter, the oil industry is getting clobbered; and nearly 100,000 U.S. workers have been laid off as a result.
Mike Williamson of Amarillo, Texas started out roughnecking, one of the toughest jobs on an oil rig. He worked his way up, and in 2011 he launched his own well-testing company. “Everything was prosperous, everything was going well for me,” he says. “Business was good.”
Business was good, that is, until it wasn’t. “December of 2014 is pretty much when I started feeling the hit,” remembers Williamson. “The oil prices were coming down. I didn’t really think it was going to hit as hard as it did, but when it did and the price fell out the bottom, it pretty much crippled me.”
Williamson said he lost, in order: his paycheck, his truck, his camper, and just recently, his house.
Only a few years ago in Texas, the future was so bright the flares from oil rigs were visible from outer space. Some 200 drilling rigs formed an orange beacon in the Eagle Ford Shale area of south Texas. Motivated by high prices and armed with new drilling technologies, producers struck black gold in the shale fields, pumping out record barrels of crude around the clock. All those rigs required workers, and the industry went on a hiring spree.
“I can remember the first time I made $50,000 a year,” said Williamson. “I thought that was amazing. But the first time I made $200,000 a year, I thought I was Donald Trump.”
The Lone Star State alone accounted for nearly half of all jobs created nationwide between 2009 and 2011.
“The story of U.S. producers for the last four decades has been one of unmitigated production enthusiasm,” noted Book. “Very enthusiastically, producers borrowed and invested and continued to grow their production in the U.S., and there was a market for that oil. Until there wasn’t.”
All that “Texas tea” flooded the market, and the basic laws of supply and demand kicked in. Too much oil brought the prices crashing down. While drivers celebrate cheap gas, Williamson is one of 72,000 Texans who are out of work as the rigs disappear.
Belt-tightening is underway at blue-chip energy companies like ExxonMobil, which reported a 58% drop in fourth-quarter earnings. Chevron recently reported its first quarterly losses in 13 years. BP says it will slash 7,000 jobs by the end of 2017.
Until last year, Michelle Patron was President Obama’s special assistant for energy and climate, where she had a front-seat to the geo-political ramifications of fluctuating oil prices. “You have oil-producing countries which have had their revenues sharply reduced,” she stated. “They’re now going to have to curtail spending, and that can breed instability. … If you think back to the 1980s, the last period of really low prolonged oil prices, you think back to some significant global events, including low oil prices contributing to the fall of the Soviet Union.”
The current oil bust is rattling stock markets around the world. U.S. stocks produced their weakest start in January since 2009. Patron says cheap oil could also impact the banking sector; and that, too, is contributing to a jittery stock market.
“Particularly the independent companies that are active in the U.S shale,” said Patron, “that borrowed heavily to finance their production. Prices have dropped, revenue has dropped, and so they could default on these loans. If that happens, banks could be left with billions of dollars of bad loans. The bond holders could lose their investment; and this increases the risks associated with investing and markets at a time when there’s already heightened concern about China.”
Along the Eagle Ford Shale where the glow once was bright, there are only 64 rigs sending out their flares. The skyline of south Texas has darkened.
“Just because you’re paying $1.34 at the pump …” noted Williamson. “When you’re doing that and life is great, there’s somebody on the other side of it that’s on a completely different spectrum. They’re hurting. They’re fighting for their lives.”
“Betting on how long this slump will last is like getting into a game of Texas Hold’em,” concluded Thuman. “It is high stakes poker. But some analysts are predicting a rebound by the end of 2016.”
