Industrial Distribution magazine recently published an article by Mike Hockett, managing editor, that read “Oil Will Rebound to $70, but not until 2020”. It goes on to explain that OPEC released its World Oil Outlook and it continued by saying that oil will move to $95 per barrel by 2040. Recently, oil prices have fallen to their lowest levels in 11 years, since July 5, 2004 and oversupply is the culprit.
I saw another article online at Bloomberg.com that read “Oil Bankruptcies Reach Highest Quarterly Level Since Recession”. The article said that at least nine U.S. oil & gas companies that accounted for more than $2 billion in debt have filed for bankruptcy in the fourth quarter. Since peaking in October, 2014, U.S. oil & gas employment has fallen by 70,000 jobs, according to analysts for this report. The article continued, “The Energy Information Administration now predicts that companies operating in U.S. shale formations will cut production by a record 570,000 barrels a day in 2016. That’s precisely the kind of capitulation that OPEC is seeking as it floods the world with oil, depressing prices and pressuring the world’s high-cost producers”. The article finishes, “Even a plunge in U.S. output may not be enough to drain a global supply glut that has almost 3 billion barrels of oil and products like gasoline in developed countries’ storage tanks, according to the International Energy Agency. The world will likely be oversupplied by about 1 million barrels a day through the first half of next year before balancing, Jeffries LLC analysts including Jason Gammel said in a Dec. 18 research note”.
There has been a lot of infrastructure spending on fracking that looks like it will be all for naught. From the Dakotas to the Ohio/Western PA/West Virginia area to Texas and up in Alaska. They all thought they hit the lottery. In Ohio, I saw more Texas and Louisiana license plates than I had ever seen before when I traveled near the Marcellus Shale area. Companies like Wilson Supply were shipping products from Texas to support the oil drilling and fracking, then more recently local suppliers were enjoying a nice increase due to the fracking. And it all happened really fast, like within five years or so. I guess some producers will continue to produce from their best, most cost effective areas. But, what once was going to be a new gold rush now looks pretty grim. I recall on one of my first trips into that area someone was explaining how land owners were selling their land to companies like Chesapeake Energy. I was told, “those farmers are selling their land for ‘Oprah money'”! I imagine you are kicking yourself right now if you held on to your land hoping for a bigger payday.
How could this all happen so quickly? It makes you wonder about our entire energy approach to energy. The coal industry is getting battered in some of the same areas where the oil money is drying up. I remember reading headlines saying that one day we would be paying $20/gallon for gasoline. Seems pretty unlikely now.
What is really tough for us in the fastener industry is the lost opportunity to supply parts into the oil & gas & coal industries. I know a lot of companies that formed specific business units specifically to go after that type of business.
I’m not sure how all of these bankruptcies affect financial markets but it cannot be good. Who’d have imagined that we would not need to produce as much energy as possible? There was a lot of money invested into these fields that is soon just going to disappear. It’s like money just evaporating, kind of like the value of a large Florida home during the housing market meltdown. When homes were not being built, sales of building supplies and home appliances got hit pretty hard. Some industrial suppliers are similarly feeling the oil & gas sting. And it all happened so quickly. I guess you have to chase business when the opportunity presents itself but things change so quickly anymore. Just ask Cardinal about putting all your eggs in one industry basket.
The last time early 80’s there was a bumper sticker here in Texas that said “Just One more Oil Boom, I Promise I won’t Piss It All Away Next Time.” Hopefully, they didn’t… As a Texas resident for almost 40 years, I have seen the highs and lows. The glut of Natural Gas today is a result of US wanting Enrgy Independence from Middle East. There needs to be some natural market mechanism to prefer US Gas and Oil (price is the only “natural” device) to keep consuming our Oil and Gas instead of importing. But I believe that if we stop sending Billions of Dollars to Saudi Arabia, they will quickly stop being our allies… same for our other trading partners there in the Middle East.
One of my sons is a casualty of the downturn and he is working “contract” work while searching for a new gig in the area of expertise. Degreed in Energy Commerce (BS Degree) these young folks are now finding the “cycle” of Energy business is a bit wider and deeper than the Fastener business… So while we enjoy gas at below $2.00 per gallon and cheap Natural Gas and Oil, our economy does suffer along with the folks in it. Just my 2 cents… figure 5 cents with inflation minus 3 cents for an oversupply of my opinion (aka bullshit…)
I remember hearing a speaker just a few years ago talking about oil & gas. They suggested, not only did we need this energy source to be continuously explored (defending fracking) but we actually would need all the coal we could continue to produce. And wind and solar. The speaker suggested the global consumption was increasing especially with economies like India’s continuing to grow and flourish. The speaker suggested we would be churning through everything we could produce. At the time, China was growing at about 8% per year and guzzling all the energy it could get its hands on. How could all this change so quickly? You’d think somebody could see this coming. Seems crazy to me.