Energy

Oil Prices Drop Below $15

Douglas A. McIntyre

Published: April 20, 2020 5:12 am

Last Updated: April 20, 2020 6:07 am

The price of benchmark West Texas Intermediate (WTI) crude oil dropped below $15 a barrel today, down 21% in a day. The unimaginable plunge takes crude from $63 a barrel at the start of the year. It is more confirmation that extremely low prices face the energy industry and will destroy dozens of companies and rob the economy of tens of thousands of jobs. Gasoline prices will drop under $1.50 a gallon and perhaps toward $1. As has often been supposed, with most of the U.S. locked down because of the spread of COVID-19, drivers and airlines will only in rare cases be able to take advantage of it.

The other huge challenge of crude below $15 in what it does to the finances of producing and exporting nations. The breakeven point for Saudi Arabia is often set as low as $10, as well as for some other countries that are Organization of the Petroleum Exporting Countries (OPEC) members. Russia, in a price battle with the Saudis, may have a breakeven price of as high as $40. That means the nation is bleeding cash as the central government underwrites the cost of the competition.

Another group that will suffer to the point of some company bankruptcies is the shale producers of the United States. Just a few months ago, unemployment in North Dakota, the center of the shale boom in the United States, was under 2.5% as drillers hired nearly as many people as they could find. Unemployment in North Dakota is likely to soar.

Gasoline at low prices also will hit the gas stations hard. Estimates are that the United States has 168,000 gas stations. Some significant number likely will shut down if the low prices stay in effect as it is now.

Oil prices have not been this low in 30 years. The cost of production, exploration and distribution has changed since then. That means forecasts of what it will do the economy are only guesses. However, those numbers cannot be good.