The economic implications
of the oil market crash in 2020
 |
| The economic implications of the oil market crash in 2020 |
The production sector in the oil and gas industry in the United States faces several risks, including the loss of about 200,000 jobs during the next six to twelve months. It is also evident that the industry will face a phase of deflation during the long-term period. Researchers Brad Handler and Morgan Basilian reached these conclusions, whose study was published last May in a paper by the Pine Institute for Public Policy of the Kolluadu Minerals School, this prestigious university that is one of the most important international universities specializing in petroleum studies. The study relied on its research and conclusions on the experience of the impact of the market collapse during the years 2015-2016, and how the US petroleum industry has grown over the past years. The importance of the study's conclusions lies in showing the extent to which the oil production industry has been affected after the current market crash and the accompanying market depression due to the "Covid-19" pandemic.
The study reports that the "Covid-19" pandemic has added an additional heavy economic burden to the oil crash of 2020. These two important developments will have their effects on the US economy, local and general, and also on the local communities dependent on the oil and gas production industry. There are also other negative symptoms that will affect the industry, as the oil production sector will be the slowest economic sector to recover. In the long term, spending and re-employment in this sector will decrease. The states and US regions closely related to this industry will face several difficulties when the oil industry returns to its vitality again, represented by high unemployment rates and low oil rents.
The oil and gas production industry in the United States greatly supports the economies of several US states. The US Department of Labor Statistics estimates that the number of employees and workers in drilling and engineering services companies (the oil production sector) absorbed in October 2019 about 464,000 employees, and this type of specialized employment in some states accounted for about 5 percent of all hands. Operating in the state, among these states are North Dakota and Wyoming. It is natural that the losses for the concerned states include not only local expenses and taxes for the related families but also value-added taxes and multiple taxes on the oil and gas sector.
As it is known, Texas is the largest oil producer in the United States, and the total volume of oil revenue that the federal government obtained from the oil and gas production sector for the state of Texas in the fiscal year of 2019 was about $ 16.3 billion, which at the same time constitutes about 7 percent. Percent of the total financial income earned by the state from this oil sector. There is also the state of Alaska, which the federal government deducted from its oil income in the fiscal year of 2019 amounted to about $ 1.1 billion, which in turn constituted about 70 percent of the state's income itself. There is also the state of Wyoming, which the federal government deducted about $ 2.2 billion from its oil income in the 2017 fiscal year, equivalent to about 52 percent of the state's revenue (and this amount includes taxes on the coal and minerals industry). And there is North Dakota, which the federal government withholds taxes on its oil sector of about $ 5.1 billion, which accounted for 45 percent of the state's income in the 2017 fiscal year.
Studies on the previous US experience for the period of market deterioration 2015-2016 indicate that the recovery phase of the US oil and gas production sector that followed the market collapse was then followed by a phase of increased production on the one hand, but the number of workers did not return to its previous rate. The reason for this is the improvement in drilling and hydraulic fracturing technology for shale oil wells, which have dispensed with a large number of manpower, as the information indicates that the average number of workers in the oil and gas production sector in January 2019 was about 487,200 workers, which means 20 Percent higher than the rate in 2016, but about 24 percent below the record number of workers in the oil and gas production sector in the United States.
Some production companies closed their doors due to the financial difficulties they faced during the recession of the markets during the period 2015-2016, and some companies tried to reduce their activities due to the bank debts they incurred. Also, the social distancing policy that should be followed due to the "Covid-19" pandemic will leave additional effects on the usual ways of working. It is noticeable that corporate profits will decline, despite the increase in production, due to the fall in the price of oil and gas to levels lower than they were before the "Covid-19" pandemic.
Oil companies are expected to suffer from these negative factors until the fiscal year 2021, as about 1.3 million citizens in Texas had been laid off by the end of April 2020. This number of unemployed in 2020 is much higher than the number of unemployed. From work during the 2015-2016 market downturn. This means that the recovery of these workers to their previous jobs will take a long time after this stage. In particular, if we take into account that the rate of oil production in the United States recorded an average of 12.2 million barrels per day, and natural gas production was about 111.5 million cubic feet per day in 2019, compared to oil production of about 8.8 million barrels per day and 86.0 million feet Cubic daily of natural gas in 2014. These numbers clearly indicate an increase in oil and gas production between 2014 (before the market crash) and 2019 (after the crash).
The study's conclusions summarize that employment in the US oil and gas production sector will not return to its full term quickly for various reasons, including uncertainty regarding the recovery and stability of prices at rates higher than they were during the pandemic, and the continuing difficulties in obtaining the necessary financing, especially after the hardship. The economic consequences of the pandemic, and the attempts to merge between some companies, which means a focus on work and a reduction in the workforce. It is very likely - as past experiences after the market crash indicated - that companies will adopt an approach to improving productivity at a time of improving labor performance and increasing production itself. These are all steps that companies must adapt to support the budget and profits after the two economic strikes that affected the global economy, and with it, of course, the oil companies.