COVID-19 eviscerated the global price of oil, inflicting pain on Utah

Kinder Morgan compression station, photographed on Ravola Dugway Road, near Upalco, in Duchesne County on Tuesday, June 16, 2020. | Kristin Murphy, Deseret News

Impact is expected to be the worst in 7 decades

SALT LAKE CITY — A new report details the devastation the COVID-19 pandemic inflicted on the oil and gas industry in Utah and around the globe, with the magnitude of the shock on energy demand predicted to be the worst in the seven decades since World War II.

The battle for market share sent crude oil prices into a tailspin, aggravated by shelter-in-place and stay-at-home policies that continue around the United States and elsewhere in the world.

A research brief released this month by the University of Utah’s Kem C. Gardner Policy Institute details that year-over-year consumption of gasoline and jet fuel, as an example, experienced decreases ranging from 48% to 80% as travel by automobiles and airplanes dwindled to a mere trickle.

In contrast, the consumption of diesel fuel that is used in trucking fleets and trains that transport consumer products only dropped by 25% as the pandemic drove higher demand for e-commerce.

While commuters and other motorists reaped the benefit of low prices at the pump and stay-at-home orders, the oil and gas sector suffered catastrophic losses, with paper contract prices for a barrel of oil dropping to negative $37.63 for the first time in history last year.

The beginning of 2020 saw oil prices of West Texas Intermediate — the benchmark for oil prices in the Western Hemisphere — at $57.52 per barrel. By April the price had plunged to $16.55, according to the U.S. Energy Administration.

Pandemic impacts were keenly felt in Utah because the waxy crude produced in the Beehive State requires insulated trucking to transport and is more expensive to refine, according to the report. That factor already puts Utah at an economic disadvantage, the report notes, because refineries can demand a lower price per barrel.

At the onset of the pandemic, layoffs in the natural resource sector drove double-digit unemployment rates in the oil and gas producing region of Duchesne and Uintah counties, and while those rates have recovered somewhat, they remain higher than the rest of the state.

Operators in the basin responded to lower prices by either decreasing or stopping production.

The report notes that by June, oil production was down by 19% from the year before and the number of shut-in wells — those no longer actively producing — nearly doubled from January to June.

And while Utah’s rig count sat at eight in the last week of March, it fell to zero in May. The report noted that in the latter half of October, the state’s drilling rig count sat at three.

John Baza, the director of Utah’s Division of Oil, Gas and Mining, said those big impacts played out in Utah beginning in April and continuing into June.

Rig counts have bounced back to a degree, sitting at about a half dozen, Baza said, and the price for West Texas crude oil has rebounded to $53.29 per barrel as of Tuesday.

Energy producers remain wary, Baza said, given price volatility and what may happen with a new presidential administration under Joe Biden.

“I think the companies are going to be cautious moving forward to discern if the pricing is going to stay stable,” Baza said.

from Deseret News https://ift.tt/2NcDlCR