Oilfield workers in South Mississippi received some good news this past week that the U.S., Saudi Arabia, Russia and other countries have agreed to cut how much oil they produce.

The oil industry in this state and neighboring Louisiana, and the many workers who rely on it to support their families, has been slammed by two unrelated catastrophes at the same time.

Just when global demand plummeted because the world shut down to stop the spread of the coronavirus, Saudi Arabia and Russia fell into a dispute and both began flooding the market to spite one another.

Rising supply and falling demand brewed the classic recipe for a price drop. West Texas Intermediate crude, one of the two major worldwide gauges of the price of oil, fell from $53.88 on Feb. 20 to $20.09 on March 30.

A price of $30 a barrel is often considered the bare minimum that U.S. producers can pump oil and still meet their costs, so layoffs and huge cuts by oil companies were inevitable.

President Trump stepped in to try and settle the dispute between Saudi Arabia and Russia and did an admirable job getting it done. The international deal, though, hasn’t helped much so far. After a slight rebound earlier in the week, the barrel price by Friday had sunk again, down to almost $18.

Multiple factors point to oil prices remaining low for the foreseeable future.

First, the problem with cartels — where multiple sellers agree to hold back how much they sell so as to boost the price — is that there is always incentive to cheat. If everyone else is withholding supply and the price goes up, one nation or company can start selling like crazy and enjoy the high price without paying the cost of selling less. Then everyone jumps back in, the cartel disintegrates and the price goes back down.

It’s unlikely that this coalition will stick together for long. It involves many competing interests plus private companies, such as in the U.S. and Canada, that aren’t bound to comply.

Second, demand is not going to go back up as long as people are sheltering at home and not driving or building or doing any of the other economic activities that use oil and gas. Until authorities scale back the anti-coronavirus measures, there’s just not much of a market for fossil fuels.

(0) comments

Welcome to the discussion.

Keep it Clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't Threaten. Threats of harming another person will not be tolerated.
Be Truthful. Don't knowingly lie about anyone or anything.
Be Nice. No racism, sexism or any sort of -ism that is degrading to another person.
Be Proactive. Use the 'Report' link on each comment to let us know of abusive posts.
Share with Us. We'd love to hear eyewitness accounts, the history behind an article.