Energy Index shows industry still struggling

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  • Oklahoma Oil
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OKLAHOMA CITY – The Oklahoma Energy Index shrunk again last month as employment and rig activity continue to fall. Payroll employment of exploration and production companies also fell to just over 34,000 jobs, a level of employment last seen in 2005.

Oklahoma averaged only 10 active rigs in any given week last month as new drilling has almost stopped in this state. However, according to Baker Hughes, an average of 11 rigs were operating in Oklahoma last week.

“To put this in context, the last two bust cycles saw a 2009 low in rig activity of 75 and a 2016 low of 57 rigs,” said Dr. Russell Evans, executive director of the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University. “The abrupt stop in activity is without precedent in recent price cycles.”

An average of 96 rotary rigs were drilling in Oklahoma in July last year and 84 were operating in August, Baker Hughes records reflect. An average of 139 rigs were drilling in Oklahoma in August 2018, and 131 were counted in August 2017.

“We remain concerned that markets are expecting too much from the nascent economic recovery,” Evans said. “There seems to be a broad and false sense of security that, having moved from a largely closed, shelter-in-place economy to more open economic activity that the worst is behind us.

“This is not the case,” he said. “The effects of the pandemic coupled with the economic repercussions of early and aggressive health policy will move the U.S. economy into a lengthy recession.”

“We’ve not been Pollyannaish about the challenges our industry faces,” said Brook A. Simmons, president of The Petroleum Alliance of Oklahoma.

“While we have recently seen product, demand increases and perhaps the floor with regard to rig activity, we’ve known reality was not indicative of a v-shaped recovery. Oklahoma still must confront the reality of the looming economic recession... It may take a significant increase in net demand for crude products to move prices back to a range that supports robust Oklahoma oilfield activity.”

Both oil and natural gas spot prices as well as both production and support employment are down at least 30% from a year ago.

PRODUCTION JOBS ROUGHLY HALF OF 2014 PEAK

“During the recovery from the 2015-2016 bust we noted that production employment would not return to the 2014 high of 65,000 jobs,” said Crystal Laux, south regional manager with BITCO.

“Indeed, production employment managed to move back to 54,000 jobs in 2018 before moving back into a contractionary phase of the cycle. Production employment now stands at 34,000 jobs and seems unlikely to return even to 2018 levels. In the years ahead we may find that each ensuing recovery, while welcomed for the economic relief that it brings, is insufficient to fully replace the activity lost in the preceding bust,” Laux said.

The Oklahoma Energy Index is a comprehensive measure of the state’s oil and natural gas production economy established to track industry growth rates and cycles in one of the country’s leading energy-producing states. The current index is a joint project of BITCO, The Petroleum Alliance of Oklahoma, and the Steve C. Agee Economic Research and Policy Institute.

In a related matter, optimistic remarks about worldwide crude demand from Saudi Aramco’s CEO plus news that Iraq intends to cut production gave oil futures a shot in the arm in Monday’s trading as futures ended the day higher.

West Texas Intermediate crude for September delivery rose 72¢ to settle at $41.94 a barrel in trading on the New York Mercantile Exchange. October Brent crude, the global benchmark, rose 59¢ on ICE Futures Europe, finishing at $44.99 a barrel.

Saudi Aramco Chief Executive Amin Nasser over the weekend said there had been a “partial recovery” in demand, and lauded a strong rebound in crude appetite in major markets, including what he described as a return to nearly pre-Covid-19 levels of demand for gasoline and diesel fuel in China, the world’s biggest energy consumer. The majority state-owned company’s net income plunged by 50% in the first half of the year.

“The rosy demand outlook, combined with Iraq saying it will cut production by a further 40,000 barrels a day to compensate overproduction over the past three months, are overshadowing the stimulus deadlock in Washington, at least for now,” said Fiona Cincotta, analyst at City Index, in a note to MarketWatch.

In other energy trading, September gasoline gained 2.17¢ to finish at $1.2293 a gallon, while September heating oil rose 1.7¢, ending at $1.2369 a gallon. Natural gas for September delivery dropped 8.5¢ to settle at $2.1530 per million British thermal units.

OKLA. GASOLINE PRICES 4TH LOWEST IN NATION

Meanwhile, Oklahomans are paying 2¢ less per gallon of gasoline this week at an average of $1.86, fourth lowest in the country, according to AAA Oklahoma.

Slight volatility was enough to drive the national average down a penny from last Monday to $2.17. Today’s average is 2¢ less than last month and 49¢ cheaper than a year ago.

“As we move into the second week of the August, it is pricing out to be the second cheapest start to the month in more than a decade,” said Leslie Gamble, AAA Oklahoma spokesperson. “Gas prices have high potential to push cheaper, especially with many school districts planning for virtual learning. This could drive demand down in the weeks ahead as school starts at-home.”

The U.S. gasoline supply is plentiful, sitting at a 17-million-barrel year-over-year surplus. If a major storm or hurricane does hit the U.S., it will be a matter of short-term shortages and how quickly gasoline stocks can get to areas of need.

In the latest Energy Information Administration weekly report, gas demand fell from 8.8 million barrels/day to 8.6 million b/d.