The breadth of the impact of the oil price collapse reaches far beyond Oklahoma and Texas. It made headlines this week in New Mexico, a state that earlier estimated to receive $1 billion in oil and gas revenue for schools and hospitals.
“Oil Price Plunge Wallops NM” read the headline in the Albuquerque Journal in New Mexico.
“New Mexico’s oil boom could soon turn to bust after world prices for crude crashed on Monday,” reported the newspaper.
State Rep. Larry Scott, R-Hobbs, called it a “perfect storm” that sent stock markets into turmoil Monday morning, slashing stock prices for oil companies and pushing crude prices into free fall.
“OPEC and Russia’s inability to achieve production cuts has effectively led to a price war,” Scott said. “Couple that with reduced demand from the coronavirus, and it’s creating a perfect storm of oversupply and under-demand.”
“If these low prices persist, there’s no doubt oil drilling here will be curtailed,” said Scott, a longtime oilman and owner of Lynx Petroleum in Hobbs. “The decline could be gradual, but it could still be fairly steep over time.”
A similar headline was in the Denver Post: “Colorado oil producers hit hard by Saudi, Russian production war and coronavirus uncertainty.”
“Oil prices took the sharpest downtown since 1991,” said Jack Strauss, the Miller Chair of Applied Economics at the University of Denver’s Daniels School of Business.
Companies in Colorado felt the blows. Occidental Petroleum, the dominant producer on Colorado’s Front Range, saw its stock closed at $12.51 a share, a 52% drop from Friday’s close of $26.86. Noble Energy, another major Colorado producer, saw its stock drop 29.8% Monday and Denver-based PDC Energy’s stock fell 48.2%.
“Of all the major sectors, energy has been the lowest performing for over a year,” Strauss said. “Profits have already been low in energy, prices have been low in energy. So this means they’re going to be in trouble.”
At $30 to $35 for a barrel of oil, many U.S. companies will find it unprofitable to drill, Strauss added.
Dan Haley, CEO and president of the Colorado Oil and Gas Association trade group, said in an email that the oil and gas industry is resilient, “especially in Colorado where we have had to endure an aggressive regulatory agenda in recent years.”
“In Colorado and across America, we enjoy much greater energy security and related economic benefits than we did 20 years ago,” Lynn Granger, executive director of American Petroleum Institute-Colorado, said in an email. “The reality is that American energy leadership is a stabilizing force in world markets and protects consumers from price fluctuations.”
The Casper Star-Tribune in Wyoming headlined the story this way: “As oil prices dive, Wyoming operators hope to weather the storm.”
The sharp shock to energy markets could hit U.S. shale producers particularly hard, and many in Wyoming have already braced for the fallout.
Chaos mounted over the weekend when leading oil producer Saudi Arabia advised OPEC to slash oil production by 1.5 million barrels per day to stabilize global markets in light of the coronavirus, or COVID-19, outbreak. The epidemic was weighing heavily on oil markets, as global demand for fuel waned. Cutting the supply of oil can often help buoy prices.
Energy companies sustained a major gutting in terms of market shares too. The Dow Jones Industrial Average sank by nearly 8 percent Monday. International energy company Halliburton’s shares fell over 37 percent. EOG Resources’s shares dropped roughly 32 percent.
“Traders in greater crude oil markets are spooked,” he added.
Despite the sharp turn in events Monday, Mason does see a tempered recovery within sight, with oil prices likely rising again within a matter of a few weeks.
But in the meantime, for Wyoming producers, low oil prices come with potential risk. At a certain price per barrel, drilling for oil can cost more than it’s worth. Many operators may elect to scale back or shut in production until the price environment improves. If that’s the case, firms may need to shed unneeded workers.
Dow drops 1,500 points as oil price plunge shocks markets
“According to third-party analysts, the average break-even point in the Powder River Basin is approximately $59 per barrel, with each company differing in per well break-even points,” said Ryan McConnaughey, communications director for the Petroleum Association of Wyoming. “We are confident that if resolved in short order, companies can weather the storm and emerge more resilient. However, if oil prices remain at $30 a barrel price over the long term, the economic viability of Wyoming oil will suffer.”