DALLAS (KRLD) - The price of oil fell by its largest percentage since the first Gulf War, dropping by more than 20 percent at some points Monday morning. The price of West Texas Intermediate crude dropped from $46.78 last Wednesday to a low of $27.34 Monday morning.
By midday Monday, the price had recovered to about $34, but the price had still dropped to its lowest level since 2016.
"What a remarkable 72 hours this has been," says Patrick DeHaan, the senior petroleum analyst at gasbuddy.com. "Saudi Arabia and Russia are basically going to war against the U.S. oil industry here."
DeHaan says the drop in oil prices is not sustainable for either Saudi Arabia or Russia, but the current price is likely to hit shale producers in Texas harder.
"The weaker shale players have already been looking at their bottom line, probably a little bit worried about paying off some of the debt," he says. "Now, with oil prices buckling, it's turned into a grave concern for the oil industry."
While Saudi Arabia and Russia may be trying to reclaim market share, Ray Perryman, chief executive of the Perryman Group, says the Texas economy has become more diverse.
"It's not in anyone's interest on the production side for oil prices to be sustained at a level this low," he says. "Normally, when the OPEC countries, Saudi Arabia in particular, allow prices to fall significantly, they're trying to discipline someone. In this case, they're trying to discipline Russia."
Perryman does say producers are likely preparing for demand to drop because of concerns of coronavirus. He says Saudi Arabia can profit from cheaper oil prices than Russia.
"Russia's production is very inefficient," he says. "They need prices much higher than the $30-$40 a barrel range."
But Perryman says both countries can make money at lower prices than shale players. He says he expects prices to start moderating in the "not too distant future."
Perryman says Saudi Arabia can make money from lower prices, but he says the country would like higher prices because Saudi Arabia has built the cost of social programs into the price.
In Texas, Perryman says shale production has become more efficient. When oil prices dropped about five years ago, he says shale producers would need prices around $70. Now, he says they can profit from prices of in the $40 range.
While the state's economy has become more diverse, Perryman says a lot of other industries, such as shipping and refining, depend on a successful oil industry.
"It won't take long for us to see some of these effects work through the entire economy," he says. "Oil is not as large a part of the economy as it used to be, but it does have a lot of multiplier effects on the economy. It also producers higher income jobs, which affects spending."