The world is awash in oil it doesn't need as the coronavirus paralyzes the global economy. Here in the U.S., that is already costing tens of thousands of energy industry workers their livelihood.
Drilling companies and refineries chopped more than 50,000 jobs in March alone, according to a report by BW Research. For the overall energy workforce, California saw the biggest drop at about 40,700 jobs or more than 4% in the initial plunge, while Texas lost more than 30,000 jobs.
And the cuts came before Monday's wild ride in commodity markets, where traders essentially were paying someonerather than risk being stuck with the cost of holding on to unwanted oil shipments. U.S. benchmark crude prices rebounded Tuesday and Wednesday, but continue to hover at less $10 a barrel — a more than 80% drop this year.
The "oil extraction sector in the United States faces tough times," Carl Weinberg of High Frequency Economics told investors in a report. "That may require support from the government, either for the drillers or the banks that financed them."
"The glut of oil is so huge that it will take months, or maybe years, to run it down. Oil prices will remain low for a while," he added.
Demand for oil has evaporated because of the severe economic disruptions around the world caused by the coronavirus, with hundreds of millions of consumers parking their cars as they hole up at home, businesses shutting down and airlines mothballing planes.
Cratering demand for crude has been compounded by a feud between Saudi Arabia and Russia that kept production at normal levels until early April, while an ensuingfailed to get ahead of the plunge in oil consumption.
The lag time between cutting prices and the shutdown of the global economy is a "double-whammy" for oil-producing regions, particularly the U.S., the world's top producer two years running.
Oil is produced in 32 U.S. states and along the coasts, with some 69% of that coming from five states: Texas, North Dakota, Oklahoma, New Mexico, and Colorado, according to the U.S Energy Information Administration. Storage facilities are running out of room for the nation's oil supplies.
Texas faces loss of 1 million jobs
In Texas, the country's biggest oil-producing state, nearly a third of the 300,000 jobs in exploration and production could disappear this year, said Ray Perryman, CEO of the Texas economic research firm Perryman Group. Factoring in potential job losses for oil service, pipeline, storage, shipping, refineries and petrochemicals, along with related sectors like retail and hospitality that depend on energy dollars, Perryman forecasts a loss of up to 1 million jobs this year in the state alone.
Companies already slashing job rolls include oil services giant Halliburton, which in March said it would furlough 3,500 workers in Houston. The Houston Chronicle last week noted that more than 6,000 oil and gas industry jobs were shed in a single day.
"Activity is in free fall in North America and is slowing down internationally," Halliburton CEO Jeffrey Allen Miller said in an earnings call on Monday with Wall Street analysts.
Halliburton's stock price around this time last April? About $30 a share. This week? About $8.25.
"We cannot predict the duration of the COVID-19 pandemic impact on demand or the pace of any subsequent recovery, Miller told analysts. "At a minimum, we expect the decline in activity to continue through year-end."
Meanwhile, smaller companies may be unable to ride out the pandemic and risk collapse or purchase by bigger rivals, even as President Donald Trump tweeted Tuesday he was directing the federal government to take steps to safeguard the industry, analysts said.
On April 1, for example, Denver-based Whiting Corp., an oil exploration company, filed for bankruptcy protection, citing lower prices tied to the Saudi-Russia feud. On Tuesday, the Wall Street Journal reported that Tulsa-based shale driller Unit Corp. is planning to file for bankruptcy.
Workers are apprehensive. In Midland, Texas, an Oil Patch capital of about 140,000 people, the downturn came quickly. Kris Dokey, a fourth-generation oil field worker, was laid off last week. "We got hit with a double whammy ... between the Saudi and Russia price war that started right about the same time the coronavirus hit," he. "Kind of unprecedented times for us out here."
If there's a glimmer of hope in Texas, it's that the state exports most of its oil. That means demand for crude might pick up as countries around the world tentatively begin to emerge from prolonged lockdowns amid the global coronavirus recession. Economist Perryman said that could help Texas's energy industry recover more quickly than after past downturns.
Unlike the major oil slump in the 1980s, which was triggered in part by OPEC failing to cut prices, the catalyst for the current decline is from outside the industry, Perryman said.
"Once we're able to restart parts of the global economy, you'll start seeing energy demand pick up. You don't have to be able to get back to what it was for the old economy to be able to start recovering," he said. "So once the health crisis dissipates to some extent, then you start seeing that the market can rationalize fairly quickly and get back — obviously, not where it was; it's going to take a while for the economy to get back to that point — but back to a level where you could start to see supply and demand work again."