Trump cast himself in a leading role in the supposed resurgence — touting the negotiations earlier in the year between OPEC and Russia to cut production and raise prices.
As usual in his presidency when it comes to economic matters, Trump is overly optimistic. The oil and gas industry in the Permian Basin and across the US remains anything but “OK.”
Facts First: Trump’s comments about the health of the US oil sector are highly misleading. The industry remains beset by relatively low prices and weak gasoline demand due to the reduced driving people have done during the coronavirus pandemic. The pain is only just beginning to ripple through the industry in the form of bankruptcies and layoffs. The number of oil and gas rigs in operation in the US is almost four times lower than it was a year ago. The price of oil is still 30% lower than where it was in January, and domestic crude production is down by about 2 million barrels a day from its pre-Covid peak.
“The oil and gas industry is on its back,” Philip Verleger, an energy markets expert and former senior research scholar at Yale University, told CNN.
“A lot of companies have started reporting their financials, and they’re just horrible,” Verleger said, adding that “this industry is going to shrink and going to shrink dramatically unless global prices go up.”
Other experts agreed, pointing specifically to the number of drill rigs currently operating in the US.
Steven Kopits, the managing director of Princeton Energy Advisors, told CNN that he believes the number of rigs operating in the US has “bottomed.”
“So to call it back is not true but it is probably fair to characterize it as saying that the deterioration has stopped,” said Kopits. “We haven’t stopped the bleeding, we’ve stopped the decline,” Kopits said. “The bleeding continues and it will get worse and worse.”
In the Permian Basin, where Trump announced victory over the oil and gas slump, the number of active rigs is down by 71% compared to last year according to the report.
Price per barrel and bankruptcy
This significant number of bankruptcies is evidence of a quickening trend seen in the industry over the past two years. In 2018, 28 producers filed for bankruptcy, and according to Haynes and Boone “[f]ollowing a steep drop in oil prices in the fourth quarter of 2018, the number of filings started trending up in 2019” to 42.
One energy economist suggested that while Trump’s claim that things are back is an exaggeration, he did say that oil prices having stabilized has calmed things recently.
“Things have definitely stabilized, things are beginning to turn around,” said Bill Gilmer the director of the Institute for Regional Forecasting at the University of Houston. Gilmer noted the stabilization of price per barrel as well as the renewed work on uncompleted wells.
“To say it’s back, yeah, that’s an exaggeration for sure,” Gilmer said. “To say it’s improving rapidly, probably not an exaggeration.”
Production and job loss
Still, whatever the future holds for the US oil industry, it’s not likely to return to its pre-pandemic fortunes, at least not anytime soon.