One of the world’s largest industries takes a sudden and sharp downturn
COVID-19 has significantly impacted the world’s top oil producers. Western and Middle Eastern countries such as the US, Canada, Saudi Arabia, Iraq and Iran are facing the brunt of the recent oil and gas decline.
In early January, West Texas Intermediate (WTI), one of the world’s leading oil price benchmarks, reported a price of $63.27 per barrel. By the end of April, the price per barrel had plummeted to lower than zero dollars per barrel – a record low.
The COVID-19 pandemic can be credited for the abrupt drop. Due to rigid restrictions and strongly enforced social distancing, international and domestic travel have come to a halt. Low levels of travel translate to a lower demand for oil and gas.
Beginning in March, Saudi Arabia and Russia had a high-profile price war that emerged during the steep decrease in the demand for oil and gas. Their conflict, which was rooted in difficulty reaching a compromise on oil production, resulted in a period of market oversaturation. Overproduction coupled with low demand acted as a catalyst for massive economic problems on an international scale.
Texas, the largest oil-producing state within the world’s largest oil-producing country, has been severely impacted by the market downturn. The oil and gas industry is a major part of the Texas economy. Many Texans’ livelihoods rise and fall in direct relation to the price of oil and gas.
The University of Houston Energy Workforce recently surveyed 408 Texas energy workers. Approximately 53% of participants responded that they were concerned about job security during the pandemic, 39% were worried about paying their mortgages and other bills and only 46% were optimistic about the industry’s future.
Phillip Cole, an environmental scientist in Texas, has experienced the uncertainty firsthand. “I clean up after oil and gas companies. … I make sure they’re in compliance with state and federal laws,” Cole stated. “[The pandemic] affected my job very badly. We’re solely dependent on oil and gas companies. [When production decreased] we went from multiple clients to only two.”
Texas is one of many economies that have felt the strain of COVID-19. Last month, the International Monetary Fund (IMF) predicted that “COVID-19 will trigger a sharp drop in household incomes in Middle East and North African (MENA) countries.”
Kristalina Georgieva, the managing director of the IMF, warned countries that the “economic impact [of COVID-19] is and will be severe.”
Since the onset of the pandemic, countries such as Egypt and Iran have requested $2.7 billion and $5 billion respectively. Although Egypt’s request was approved, Iran still awaits an answer. Even though Iran’s rate of oil production was already low relative to its abundant reserves, it is still notably affected by the world’s decreased demand for oil and gas. Iran’s oil and gas industry had already suffered considerable losses due to US sanctions; the market instability due to COVID-19 only adds to the existing problem.
“It’s a domino effect. If the price of oil has plummeted, then companies make layoffs. If they aren’t producing any oil, then we have nothing to regulate,” Cole said. “Everybody suffers.”
The Texas Railroad Commission (RRC) is responsible for regulating the state’s oil production. Despite briefly considering proration in order to ease the effects of overproduction and move in the direction of a more stabilized market, the RRC ultimately decided against this measure.
As of June 7, WTI’s price was reported at $39.55 per barrel. Although this is not a complete recovery of the market, it is a step in the right direction. Cole told The Media Line, “I can’t say things are back to where they were but with the economy opening back up after the COVID-19 shutdown, I can say things are picking up slowly but surely.”
Carla Michelle Warren is a student in The Media Line’s Press and Policy Student Program.