A one-two punch of lost oil demand caused by the coronavirus pandemic, coupled with a game of chicken where Russia and Saudi Arabia are opening their spigots to flood the globe with below-profit supplies, threatens to bankrupt American producers — most particularly the small independent suppliers.
On the demand side, factory and business closures, drastic scale-backs of airline flights, and cancellations of travel in general, are creating massive surplus oil overstocks straining revenues and storage capacities.
Adding to this, the supply global side is further being glutted with more below-cost production than can be economically sustained by any producing country — Russia and Saudi Arabia included.
Hope springs eternal that Russia and Saudi Arabia will soon agree to cut production by millions of barrels a day out of mutual self-interest.
Russian private oil executives are among those who have begged the Kremlin to end the stand-off leading to a deep economic depression. Oil prices below $30 per barrel are also raising a big political price for the Kremlin in propping up Maduro's regime in Venezuela.
And although Saudi Arabia can pump oil at a lower cost than almost anywhere, Crown Prince Mohammed bin Salman needs a price of about $80 per barrel to balance the kingdom’s budget.
Some Saudi officials have reportedly indicated that the kingdom will consider substantial output cuts, provided that the Group of 20 (G-20) nations are willing to join the effort.
This resulting double whammy of plummeting world demand and burgeoning oversupply which has plunged America’s national average for gasoline well below $2 a gallon also threatens to drive a far broader global recession that will further shrink and devalue our oil industry export markets.
Some experts predict that oil demand could fall by one-quarter this year.
Trading houses have slashed their forecasts for daily global oil markets by tens of millions of barrels daily. Both Exxon and ConocoPhillips shares have already shed 40% of their value so far in 2020.
American shale company revenues are being hit particularly hard.
Former Texas Governor and U.S. Energy Secretary Rick Perry recently told Fox News host Tucker Carlson that with our capacity full of cheap oil, America is "on the verge of a massive collapse of an industry that we worked awfully hard, over the course of the last three or four years, to build up to the number one oil and gas producing country in the world, giving Americans some affordable energy resources."
The Whiting Petroleum Company is an example.
Whiting's CEO, Bradley Holly, attributed his organization’s filing for Chapter 11 bankruptcy to "the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi/Russia oil price war and the COVID-19 pandemic."
Perry emphasized that widespread financial collapses of the smaller companies would have very painful long-term consequences for American consumers.
"If we woke up a year from now, and there were five big companies because all of these independents were gone out of business . . . I would suggest that would make a lot of Americans really nervous," Perry said.
Losses of those smaller, independent companies will also hurt people who depend upon them for jobs: "There's this host of Americans who their entire future — taking care of their family paying their mortgages — is tied directly to the energy industry," Perry said.
"It's a driver of a massive amount of our American economy," Perry added.
To address this crisis, Perry urges President Trump to tell refineries to only use U.S. crude oil for the next 60 to 90 days. This, he says, would "give a buffer to the market" and "send a clear message that we're just not going to let foreign oil flow in here" and "bust our oil industry."
However, there are limitations on the effectiveness of strategy.
Saudi Arabia accounts for a mere 6% of U.S. crude imports. Most comes from Canada, and in any case, U.S. refineries will need to import heavier crude to mix with lighter, sweet shale oil.
President Trump has directed the U.S. Department of Energy (DOE) to issue an industry solicitation for the purchase of 77 million barrels of American-made crude oil that will begin filling up the nation’s Strategic Petroleum Reserve.
An initial purchase of up to 30 million barrels of sweet and sour crude oil will focus on small to midsize U.S. oil producers.
As current Energy Secretary Dan Brouillette explained, "DOE is moving quickly to support U.S. oil producers facing potentially catastrophic losses from the impacts of COVID-19 and the intentional disruption to world oil markets by foreign actors."
Nevertheless, the only long-term solution to this American and global dilemma is to work together to beat the deadly common virus enemy.
Before anyone cheers about politically and pandemic crisis-strangled oil prices as a short-term gift to consumers, there is no reason to applaud losses of industries that are vitally needed to fuel our recovery.
Each of us has an important part to play in helping to accomplish this victory.
Larry Bell is an endowed professor of space architecture at the University of Houston where he founded the Sasakawa International Center for Space Architecture (SICSA) and the graduate program in space architecture. He is the author of several books, including "Cyberwarfare: Targeting America, Our Infrastructure, and Our Future" (2020), "The Weaponization of AI and the Internet: How Global Networks of Infotech Overlords are Expanding Their Control Over Our Lives" (2019), "Reinventing Ourselves: How Technology is Rapidly and Radically Transforming Humanity" (2019), "Thinking Whole: Rejecting Half-Witted Left & Right Brain Limitations" (2018), "Reflections on Oceans and Puddles: One Hundred Reasons to be Enthusiastic, Grateful and Hopeful" (2017), "Cosmic Musings: Contemplating Life Beyond Self" (2016), "Scared Witless: Prophets and Profits of Climate Doom" (2015) and "Climate of Corruption: Politics and Power Behind the Global Warming Hoax" (2011). He is currently working on a new book with Buzz Aldrin, "Beyond Footprints and Flagpoles." To read more of his reports — Click Here Now.
© 2022 Newsmax. All rights reserved.