There’s been too much oil on the market since well before the coronavirus outbreak. But a recent agreement to cut production won’t be enough to prevent states in the Mountain West from taking a big hit.
The deal among major oil-producing countries is being eclipsed by plummeting demand due to the COVID-19 crisis. The International Energy Agency estimates in a report published this week that demand has dropped by 29 million barrels a day to a level last seen in 1995, creating a historic glut. The world's top oil producers agreed to reduce daily production by about 10 million barrels.
Current prices – around $20 a barrel, an 18-year low – are about half of what’s needed to make a profit in the Mountain West's oil patches. The crash is already reverberating throughout the region as drillers idle wells and lay off workers while states warn of devastating budget implications.
Rob Godby, an energy economist with the University of Wyoming, suspects the pain could last a long time.
“We may see wells shut in, and you know once that happens, it’s not certain that when markets come back, that producers will too," he said.
Many oil companies carried serious debt going into the crisis, Godby said, so even if they survive it they’ll be hard-pressed to find much capital to rebuild amid a national recession.
Nationally, New Mexico ranked third and Colorado ranked fifth in oil production in 2019, according to the U.S. Energy Information Administration.
This story was produced by the Mountain West News Bureau, a collaboration between Wyoming Public Media, Boise State Public Radio in Idaho, KUNR in Nevada, the O'Connor Center for the Rocky Mountain West in Montana, KUNC in Colorado, KUNM in New Mexico, with support from affiliate stations across the region. Funding for the Mountain West News Bureau is provided in part by the Corporation for Public Broadcasting.
Do you have questions about COVID-19? How has this crisis affected you? Our reporters would love to hear from you. You can submit your question or share your story here.