At $10 a barrel of oil, your gas would be cheap, but your job could be gone.

Oil producers would cease operations because they would not be able to turn a profit, which translates to a loss of jobs and a hit to the economy.

After all, oil production is a driver of income growth, gross domestic product and economic recovery.

“Ten dollars is possible but not for a sustained period of time,” said Patrick DeHaan, a senior petroleum analyst at Gasbuddy.com.

Although gasoline would be about $1 a gallon, DeHaan said it’s a “short-lived win for motorists at the pump.”

“It could lead to a recession,” he said, adding that the oil and gas industry would affect all sectors of the economy.

Anything is possible, but both analysts and economists consider the possibility of $10-a-barrel oil laughable — even though the cost for a barrel over the past year has dropped more than 50 percent. The high in 2014 was an average price of $98.70 compared with the 2014 low of $54.86 in December, according to the U.S. Energy Information Administration.

PNC Bank economist Mekael Teshome foresees the future of oil prices on an uptick. PNC forecasts the price up to $60 a barrel for a 2015 fourth-quarter average.

“We are saying it has bottomed out, and we expect it to increase modestly,” Teshome said.

In February, Bloomberg View columnist A. Gary Shilling, and president of A. Gary Shilling & Co., a New Jersey consulting agency, wrote that $10 a barrel oil is possible and supplied several reasons why, including the low demand for oil but high supply.

Daniel Flynn, an energy analyst and trader at Chicago-based Price Futures Group, believes prices won’t fall that low. That includes the impact of the U.S. nuclear deal with Iran, which would lift economic sanctions and put Iran’s oil supply into the market.

“[The deal is] not going to put a dent in the market for at least a year,” Flynn said.

Phil Flynn, another analyst of the Price Futures Group, said oil prices will bounce back to about $80 by the end of the year because demand will improve, and cutbacks in U.S. production will reduce supply. Oil and natural-gas production will eventually start to fall, he added.

CAUSES

Oil prices have declined from more than $100 a barrel to about $50 because of a global oversupply, said Shawn Bennett, Ohio Oil and Gas Association executive vice president.

OPEC, an intergovernmental organization of 12 oil-exporting developing nations that includes Saudi Arabia, made the decision last Thanksgiving not to cut production to weaken U.S. oil production.

The worldwide economy has also played a part in oil prices dropping. The European economy is weak, and China also has been in a depressed period.

“The stronger the economy is worldwide, the more demand for energy is going to be,” said George Mokrzan, director of economics for Huntington Bank. “I think the price of oil will come back.”

COST IMPACT

The more than 50 percent drop in prices has made U.S. producers tighten their business, and, in turn, so have the companies that supply products to the producers.

Vallourec Star in Youngstown produces small-diameter pipe for the oil and gas industry. In February, the drastic drop in oil prices caused leaders there to make the decision to lay off employees for three weeks and offer voluntary six-month layoffs. In addition, Vallourec made adjustments in production schedules, negotiations with suppliers and minimized the use of contractors.

“With falling oil prices, our customers are scaling back their drilling plans,” said Jean Gaetano, manager of communications for Vallourec Star. “The U.S. rig count continues to drop. This decline has impacted our pipe orders, and we have adjusted our forecasts for the year.”

Some positives also have resulted from the drop.

Consumers have been able to spend less at the pump. In December, many Mahoning Valley residents were enthusiastic to pump gas when its price hit $1.99 a gallon or less.

“Essentially, all consumers and businesses have to utilize energy to some degree, and some extensively,” Mokrzan said. “With the cost coming down, that frees up money for other expenditures.”

Teshome said the drop has benefited many Northeast Ohio manufacturers, and Mokrzan agreed.

“The real issue is how long is this impact going to be,” Mokrzan said. “It is a volatile situation. It creates factors that are positive for some and negative for others.”

The drop has required producers to become more disciplined with production.

The U.S. rig count as of April 10 is 760, compared 802 a week ago, and 1,517 a year ago, according to Baker Hughes. Production in the U.S. went from 288,934 barrels in December 2014 to 284,737 barrels in January 2015, according to the Energy Information Administration.

Chris Faulkner, CEO and chairman of Dallas-based Breitling Energy, said the company has had to shift interest in where it drills. The shift went from the Bakken formation in North Dakota to the Permian basin in west Texas.

“For us, right now that is the most economical area to drill in,” he said.

The drop in prices has caused the company to “drill better and drill faster,” Faulkner said. “That allows us to maximize what we are doing and minimize the cost.”

VOLATILE PRICES

But the volatile prices also took some jobs away.

Faulkner predicts the year will finish with prices at $63 a barrel.

“We do not see oil coming back to $100 until the end of this decade,” he said.

Faulkner would like to see U.S., Mexico and Canada join forces to diminish the influence of OPEC on the price of a barrel of oil.

“If you add the production of the U.S., Mexico and Canada together it would be higher than OPEC’s,” Faulkner said. “We have the 800-pound gorilla, so we should be able to sit and talk at the table.”

The goal would be to form a North American Energy Confederation within the next 12 to 24 months.

“The idea of North American independence I don’t think is crazy at all,” he said.

Faulkner explained benefits of the confederation for the consumer: It would better allow the oil shipments to flow, it would reduce overhead costs, and oil would be refined and delivered for less.

Canada and Mexico are both interested in the confederation, he said.

“If we are all on the same side, then it gives a viable opponent to OPEC,” Faulkner said. “We have taken it up to Capitol Hill and are working with lawmakers to see if we could get buy-in.”

IMPACT AT $10 OIL

In Ohio, OOGA’s Bennett said prices already are affecting production, citing the decline in the rig count.

According to the Ohio Department of Natural Resources, the average rig count was at a low of 36 in March 2014 and hit a high in November 2014 with 53. But by March 2015, the rig count was an

average of 26.

With $10-a-barrel oil, “you would see all those rigs leaving the state,” Bennett said.

He said Saudi Arabia has the advantage over U.S. producers because the country has geological formations where the oil just flows and also a government that has full control over the industry, which brings lower production costs.

Mokrzan believes a drop to $10 a barrel is very unlikely.

“It is not in [the producers’] interest to drive it so low that will really hurt their revenues,” he said. “I do not think that would happen.”

Neither does Teshome. Into 2016, PNC forecasts oil at an average of $63 a barrel. “We have been through this before in 2008 when people said $200 a barrel was a possibility,” he said. “If the price goes down too low then we will see some companies go out of business.”

Vindy.com

62 Comments on "Free fall in oil prices could fuel recession"

rockman on Mon, 13th Apr 2015 9:40 am 



“I expect governments to create as much money as it takes to keep BAU and the oil industry ticking over.” I don’t have a break down but the banks aren’t the only ones who financed the oil patch. That wasn’t money created by the fed…it was real $’s that paid for those bonds. As JPM says:

“It’s a well-known fact that energy companies racked up a fair amount of debt to take advantage of the shale boom in recent years. Capital was flowing into the energy sector as investors eagerly provided funding to drillers. Because of this, energy companies represented the fastest growing segment of the high-yield bond market over the past few years. In fact, energy companies now account for 18% of all outstanding high-yield bonds according to J.P. Morgan, which is up from just 9% in 2009. All of this debt could pose a real problem if oil prices don’t recover in the next couple of years.”

MSN Fanboy on Mon, 13th Apr 2015 10:17 am 



That’s true Davy. Its not likely computer science will be worthwhile after the event anyhow. Sigh… I’m just sick of ignorance. Human ignorance even in the face of widely accepted mathematics does annoy me. On one hand human beings are supposed to be these clever resourceful innovators with rational but everything we do is done via subjective prisms… As dredd notes. Marmico and Nony represent the majority of human beings… It kills me to admit. The clever suicidal mammal. Don’t worry, I’m not going to attack the site, its fantastic. I’m sorry if i upset the admin too.

BobInget on Mon, 13th Apr 2015 10:20 am 



Total products supplied over the last four-week period averaged 19.2 million barrels per
day, UP by 4.5% from the same period last year.

Over the last four weeks, motor gasoline
product supplied averaged 9.0 million barrels per day, UP by 2.0% from the same period
last year. Distillate fuel product supplied averaged over 3.9 million barrels per day over
the last four weeks, UP by 2.7% from the same period last year. Jet fuel product supplied is UP 7.9% compared to the same four-week period last year.

Gasoline production will be 9.5 M B p/d
in JUly.

Apneaman on Mon, 13th Apr 2015 11:50 am 



If only TPTB could come with some plan so the public gets stuck with the shale debt like the last time. If only they could enact some new legalization while the sheep were distracted by their myriad of circuses.

New G20 Rules: Cyprus-style Bail-ins to Hit Depositors AND Pensioners

“Rather than reining in the massive and risky derivatives casino, the new rules prioritize the payment of banks’ derivatives obligations to each other, ahead of everyone else. That includes not only depositors, public and private, but the pension funds that are the target market for the latest bail-in play, called “bail-inable” bonds.

“Bail in” has been sold as avoiding future government bailouts and eliminating too big to fail (TBTF). But it actually institutionalizes TBTF, since the big banks are kept in business by expropriating the funds of their creditors.”

http://ellenbrown.com/2014/12/01/new-rules-cyprus-style-bail-ins-to-hit-deposits-and-pensions/

yogi on Mon, 13th Apr 2015 3:46 pm 



The real story what is in store for fracking.

https://www.youtube.com/watch?v=hY8Vb3SBa9U

Nony on Mon, 13th Apr 2015 4:42 pm 



100 years of nat gas! New PGC estimate is out. And the mighty, mighty is leading the way. So much for poor Art Berman. He has just been getting shown, so, so wrong since 2009 anti-shale gas comments.

http://potentialgas.org/download/pgc-press-release-april-2015.pdf

“The largest volumetric and percentage gains were reported for Appalachian shales, primarily the Marcellus but also including the Utica and the newly assessed Rogersville Shale, which collectively rose by 137 Tcf (24%).”

Utica getting more and more mainstream respect. And they even talk up the Rogersville!

So much for Hubbert’s peak gas. That is blown out of the water.

Nony on Mon, 13th Apr 2015 4:46 pm 



Damn it feels good to be a gangsta!

https://vimeo.com/56886652

Nony on Mon, 13th Apr 2015 4:56 pm 



http://www.frackcheckwv.net/2015/04/10/2015-potential-gas-committee-reports-record-high-natural-gas-resources/

“Unconventional natural gas production is proving to be more durable than many people expected, officials said as the Potential Gas Committee released its 2014 yearend report indicating that the US has a record 2,515 tcf technically recoverable gas resource base.”

““We have never seen any reason to back down on our numbers,” said John B. Curtis, a professor emeritus at the Colorado School of Mines geology and geological engineering department, and director of the school’s Potential Gas Agency”

“Shale gas’s share within the traditional resources category was 616 tcf in 2008, 687 tcf in 2010, 1,073 tcf in 2012, and 1,253 tcf in 2014. “I’ve been listening to shale gas nay-sayers for 10 years, when US production was less than 50 bcfd,” said Christopher B. McGill, AGA’s vice-president for policy analysis”

Apneaman on Mon, 13th Apr 2015 6:10 pm 



Hurrah the liquid fuel crisis is over! We will convert the auto industry, the airline industry, trains, and shipping to natural gas starting tomorrow…..again. This makes America energy independent……again. Sucker investors line up…..again. Hurrah!

GregT on Mon, 13th Apr 2015 6:53 pm 



“100 years of nat gas!”

Hooray, we have enough natural gas to kill off the entire the human race. Yee-Haw!!!!!!!

Makati1 on Mon, 13th Apr 2015 8:04 pm 



Davy, I read that article before. One month does not make a trend. All I am saying is that if the UFSA published real numbers you would see that China is still way ahead of America in most things that are a plus. As to how they handle the current economy there, we shall see, but I don’t see a crash starting from their area of the world. I see it starting in the Western countries (UFSA, Japan,the EU) and the financial tsunami radiating out from there.

They do have different methods than are possible in the UFSA. They have a huge surplus to draw on. About $4 Trillion last time I checked. Whereas, the UFSA has a $17+ Trillion deficit and no chance to turn it around or even stop it from growing.

The UFSA needs a war, a BIG, BIG war, and soon, if it is to survive the coming crash as a nation.

Davy on Mon, 13th Apr 2015 8:33 pm 



OH, Mak, you can’t stand that your super heroes in Asia are showing signs of descent. You are incapable of processing such thinking because you are so emotionally connected to Asia rising and the US descending. This is religious issue for you. I realize you have rejected your Mormon roots but I see a continued emotional religious streak in you with your higher power now being Asia. Blind faith and denial are strong in you still.