The jokes started quickly on social media about people looking to buy a barrel or two of oil since prices were so cheap.
But the precipitous drop in prices is no laughing matter for people who work in the energy sector. For the first time, U.S. prices for crude oil dropped into negative territory and sellers were paying buyers to take excess supply off their hands.
Some oil companies have rented tankers to store surplus oil, and experts estimated that oil storage tanks would reach capacity in about three weeks.
“From the oil side, this is devastating,” said Dan Weaver, president and executive director of the Pennsylvania Independent Oil and Gas Association. “It’s a perfect storm. Thanks to COVID-19, we managed to change about 50 variables, probably lots more.”
Many of the association’s members are smaller, family-run oil producers. Weaver said he’s talked to members who have had to lay off family members.
That “perfect storm” is the never-before-seen global shutdown with more than 3.6 billion people around the world battling coronavirus by staying at home.
Combine that with a technical aspect of the futures market, a price war between Saudi Arabia and Russia, and a sudden, sharp drop in demand — among other factors — and the oil and gas market took a major hit.
“The world has been turned upside down,” said Bud Weinstein, an economist and associate director of Southern Methodist University’s Maguire Energy Institute.
President Trump tweeted that he would “never let the great U.S. Oil & Gas Industry down” and instructed Energy Secretary Dan Brouillette and Treasury Secretary Steven Mnuchin to provide financial assistance to the sector.
The oversupply of crude oil has been building for some time. In February, the U.S. produced about 13 million barrels per day; that dropped by about 900,000 barrels per day last week.
Although Trump struck a deal with OPEC and Russia to reduce production by 10 million barrels per day, Weinstein said that’s not nearly enough to offset the glut.
On April 20, the May futures contracts for West Texas Intermediate crude oil dropped more than 100 percent in a single day, as buyers paid sellers to take the product off their hands. Producers also took a hit as oil prices dipped to levels not seen since the 1950s.
About 10 percent of the world’s oil tankers are currently being used as storage for the oversupply. Industry experts estimate that about 40 million gallons of Saudi Arabian crude are heading to the U.S., which will add to the overstock.
“This is so bad,” said Stephen Moore, co-founder of the Committee to Unleash Prosperity. “At this point, there’s only one thing that will actually get this industry up and running again and that’s to get the world’s economy up and running.”
The coronavirus lockdown sent unemployment claims surging to 22 million. Since the U.S. Department of Labor began weekly tracking of jobless claims in 1967, that figure had never been higher than 700,000.
The oil and natural gas industry in the U.S. represent 5.6 percent of the U.S. workforce — that’s about 9.8 million jobs, according to the American Petroleum Institute, one of the main trade associations representing oil and gas producers, processors and distributors. Over the last two months, there have been tens of thousands of layoffs in Texas, mostly in the exploration side of the business, Weinstein said.
Last week, companies in Texas, including Baker Hughes and Halliburton, announced plans to cut about 6,400 jobs.
In Louisiana, where oil and gas comprise 2 percent of the state’s total workforce, producers and service companies are hemorrhaging jobs. If prices remain depressed for a significant time period, many independent operators could go under and there could be a number of bankruptcies, Weinstein said.
“It’s real ugly in America’s oil patch,” he added.