According to former Energy Secretary Rick Perry, the oil industry is on the verge of a catastrophic collapse due to the decrease in demand for oil worldwide caused by the coronavirus outbreak and a steep decline in oil prices. Perry, a former governor of Texas, was interviewed by Fox News’ Tucker Carlson on March 31, where he detailed the scenario surrounding suchan outcome.
“Our capacity is full,” Perry told Carlson. Citing the fact that the Saudi government is currently flooding the market with cheap oil, Perry went on to say that “…we are on the verge of a massive collapse of an industry that we worked hard, over the course of the last three or four years, to build up to the number one oil and gas producing country in the world, giving Americans some affordable energy resources.”
The oil crash deepened two weeks ago, sending prices to an 18-year low in a stark demonstration of how the coronavirus is crippling fuel demand and leaving consumers unable to take advantage at the pump.
At that time, U.S. crude-oil futures had slumped 6.6% to $20.09 a barrel, ending the day at their lowest level since February 2002. The drop brought their slide for the year to 67%, or $41. Oil entered its final trading day of March on pace for its biggest percentage drops on record for any month or quarter, according to Dow Jones.
To address the crisis, a group of major U.S. oil and gas executives met with President Trump last Friday to discuss the historic crash in oil prices triggeredby the COVID-19 pandemic, but company executives and oil-state politicians remained divided regarding what the federal government could do to stop the sector’s bleeding, and what measures would be appropriate, as opposed to overreaching.
Smaller U.S. shale companies, many of which are deeply in debt, are also asking for aggressive federal action to halt the flow of foreign crude into the United States, making their reserves uneconomic to access.
Deconstructing the Devastation
With many U.S. states and countries around the world have ordered their citizens to stay home to contain the spread of the virus, airlines dramatically cutting back on flights as the number of passengers has fallen off and with fewer cars on the road, the demand for oil has plummeted. Factor in the ongoing dispute between Saudi Arabia and Russia has resulted in an oil surplus, and the price for gasoline has also plunged. The national average forgas in the U.S. is now below $2 a gallon.
Perry maintained that this could force smaller, independent companies to shutter and hurt the people who depend on them for jobs. “There’s this host of Americans who their entire future—taking care of their family paying their mortgages—is tied directly to the energy industry,” Perry said. “It’s a driver of a massive amount of our American economy.”
Perry went on to outline how the loss of those smaller companies could have long term consequences for American consumers. “If we woke up a year fromnow, and there were five big companies because all of these independents were gone out of business,” he said, “I would suggest that would make a lot of Americans nervous.”
Unwelcome Signs of the Times
According to USA Today, “Perry’s concerns appeared prescient Wednesday after the Whiting Petroleum Corporation announced it was filing for Chapter 11 bankruptcy,” with the company’s CEO citing the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi/Russia oil price war and the COVID-19 pandemic.
As one measure to address the crisis, Perry said he would recommend to President Trump that refineries only use U.S. crude oil for 60 to 90 days, asserting that this would “give a buffer to the market” and “send a clear message that we’re just not going to let foreign oil flow in here” and “bust our oil industry.” Perry also suggested that the Treasury Department could buy up oil futures to help buoy the industry.
Hinting that U.S. national security could suffer as a result of the oil industry’s implosion, Perry offered that “…If our independent operators—who have led the shale revolution, who have made America the number one gas-producingcountry in the world—if we lose that, we’d go back to 1974. I remember whatthat was like, where we were beholden to countries that didn’t necessarily have our best interests in mind.”
Alarmist or not, the current economic and natural threats to the oil industry cannot be denied. While some consumers may be rejoicing at lower gasoline prices, according to Perry, all consumers should be crossing their fingers at the potential economic fallout the collapse of our oil industry might bring to the whole country.