Daily Christian News

Shock warning: US energy sector could collapse

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Tucker Carlson of Fox News recently interviewed former Secretary of Energy Rick Perry regarding the depressed energy market in the US.

Perry, also a former governor of Texas, a big oil state, warns that a weak energy sector in the US economy will make the US vulnerable and dependent on countries like Saudi Arabia for our energy. Foreign oil producers could decide what US citizens pay for energy. Do we want that again?

The US became an energy-independent nation because of the “fracking” method of extracting oil out of shale and sand. Many states like South Dakota and Texas are enjoying the benefits of a strong energy economy and thereby the whole nation, except for California, benefitted.

All of that changed when Russia and Saudi Arabia started an oil price war earlier in March, flooding the open market with cheap oil, exceeding demand and driving down the price of oil under $30 to even as low as $19 dollars a barrel.

American independent oil producers

These low prices threaten many independent oil companies, the backbone of the fracking revolution. Without their presence in the market, we would be at the mercy of “big oil,” companies rich enough to absorb the losses of not only the Saudi-Russian price war but also the decreasing domestic demand due to coronavirus lockdown.

People are doing a lot less driving as the “shelter in place” to slow the coronavirus. No driving equals less demand for gas. Less demand for gas equals plunging prices.

Many independent oil companies need to make a certain amount per barrel to pay their bills and make a profit.

According to oilprice.com: Breakeven prices for U.S. shale basins range between $39 and $48 per barrel, according to data compiled by Reuters. Meanwhile, West Texas Intermediate (WIT) is trading below $25 a barrel and has been for over a week now.

US companies that survived the low prices in 2014 and 2015 are lean and frugal, and some 50% of them could breakeven at $30 per barrel but the price has dropped below $20 per barrel, now. Perry says: “We are on the verge of a massive collapse.” At these unsustainably low prices, companies will stop production as it will no longer be economically sound to continue to drill.

There is also a storage problem. The oil glut is filling all the storage and when the storage is full, prices could drop even more. Again according to oilprice.com:

Meanwhile, pipeline operators in Texas are asking producers to stop pumping oil because storage space is filling up. The storage problem is becoming critical on a global scale. According to the chief analyst of data analytics firm Kayrros, if storage continues to fill up, oil prices could fall close to zero.

Forbes ran an article back in early March explaining how Russia is manipulating the market to crush US shale oil production. The author points to US sanctions as the reason Russia wants to retaliate. You can read the article here.

Lower prices always seem good to the consumer, and we enjoy getting a bargain at the pump, but US energy producers need to make money for the US to remain independent and that is critical to our economy and our national security.

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