Last week brought America some of the most bizarre economic news in recent memory, as the price of a barrel of oil fell through the floor and actually started trading in negative numbers. How is that possible, and what does it mean for producers, refineries and manufacturers in Louisiana? Gifford Briggs is President of the Louisiana Oil and Gas Association and he joined Newell Monday morning to explain.
“I don’t know if you’d say that this industry is in shambles, or distressed, or what,” Newell began. “Maybe this is a stupid thing to ask, but what word would you use to describe this? Every morning it’s just one curveball after another.”“Every word you used so far is appropriate… I’m trying not to get too much into doomsday scenarios, but maybe ‘disaster’ is an easy way to look at this,” Briggs said. “Looking at prices, this is just unprecedented. Oil has fallen 25% today, down around $12, and it’s just another day. Any other day in the history of this industry, that would be news, but given that last week we saw it at negative $37, this is now the norm. And anything below 30 doesn’t count. We’re a long way from where we need to be to have any chance of recovery in the oil industry. Natural gas is right there too, at the $1.60 range, and we need that to be above $2.”“Give us a little historical perspective,” Newell said. “Go back a year and tell us where we were in early 2019 and what that was like relative to where we are now.”“A year ago? Let’s not even go there, let’s just look at January 1, 2020,” Briggs said. “We were at $61 and now we’re at $12. 80% of the price has been lost in roughly four months. There are very few industries that could survive that. Can you imagine if the price of a car fell by 80% and the carmakers had no choice about it? There’s no way those industries could withstand that. Or if the price of a gallon of milk fell by 80%. It’s unheard of. Not adjusted for inflation, we haven’t seen prices at this level since 1973. When you do adjust for inflation, we’ve never, ever seen the price this low.”
“You guys were very complimentary of one thing President Trump suggested, of increasing strategic oil reserve purchases. What does that actually do for you?” Newell asked.“The biggest challenge we have with the prices right now is there’s no place to put oil,” came the answer. “We originally thought that beginning in May, storage would start to run out and producers would be told they couldn’t sell their oil. What’s happened now, because the prices have gone down and we’ve built storages up so much faster is that companies have already started shutting production in, because they’re being told they can’t sell it, it doesn’t matter what price. Globally, that’s expected to hit max capacity in the second week of May, which means every tank, every tanker, every refinery is going to be completely full. One barrel in, one barrel out. When we talk about the Strategic Petroleum Reserve, that’s a place the Federal government has the ability to store 77 million barrels of oil. The President tried to get $3 billion to buy the oil when it was at $25 but he couldn’t get it and they basically put it out for lease. Companies can go buy the storage space and lease it and make some money off of it… these are temporary band-aid measures that do provide some relief and push that date out a little further, but they don't do anything to stop this.”
