In love and war, everything is fair. And U.S. President Donald Trump knows that well. After all, to him, the re-election bid is nothing but war.
While campaigning in Midland, a region deep in the heart of the west Texas oil patch, Trump underlined: “And now we’re back,” proclaiming euphorically, “and now we’re just going to keep expanding. … We did a great job.”
Not really, says CNN. The oil and gas industry in the Permian Basin and across the U.S. remains anything but okay, it emphasized.
And there are reasons for this pessimism.
The COVID-19 crisis will lead to global oil demand dropping by around eight per cent this year compared to last year, the International Monetary Fund (IMF) said in its new report.
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As well, oil prices will be 41 per cent lower this year than in 2019, the IMF said in its global imbalances and COVID-19 crisis external report.
The IMF estimates for this year’s global oil demand decline are in line with other forecasters. According to the International Energy Agency (IEA), the world is expected to consume an average of 92.1 million barrels per day (bpd) of oil this year, compared to the typical demand of 100 million bpd.
The recent rise in COVID-19 cases in some parts of the world, including the U.S., and the return of partial lockdowns add a further sense of uncertainty around the global oil demand.
The Organization of Petroleum Exporting Countries (OPEC) projects global oil demand to drop by 8.9 million bpd in 2020.
And while the president is claiming victory, U.S. oil production went down by 1.99 million bpd in May, the U.S. Energy Information Administration reports. This is the largest monthly decrease since at least January 1980.
Energy asset values in the U.S. also continue to go down. Forty publicly-traded U.S. oil producers wrote down a collective US$48 billion on the value of their assets in the first quarter of 2020, the EIA recently reported.
In the backdrop, CNN underlines that Trump’s comments about the health of the U.S. oil sector are highly misleading. The pain is only just beginning to ripple through the industry in the form of bankruptcies and layoffs. The price of oil is still 30 per cent lower than where it was in January, and domestic crude production is down by about two million barrels a day from its pre-COVID-19 peak.
The industry is not back, but is “on its back,” CNN quotes Philip Verleger, a former senior research scholar at Yale University, as saying.
“A lot of companies have started reporting their financials and they’re just horrible,” Verleger said. “This industry is going to shrink and going to shrink dramatically unless global prices go up.”
The number of rigs operating in the U.S. is also abysmally low. According to a Baker Hughes report last Friday, there were only 247 active drilling rigs operating in the U.S., down from 942 at the same time last year. In the Permian Basin, where Trump announced victory over the oil and gas slump, the number of active rigs is down by 71 per cent from last year.
The picture is not rosy. For Trump to claim the U.S. energy sector is back is premature, if not wholly untrue.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris.
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