When oil prices dropped last year, everyone was surprised and somewhat relieved. And even though some economists were not too happy about the drop, none of them were too concerned about prices remaining low for too long, until now. To many economists, the drastic reduction in price is only going to create a short impact that can be buffered by the strength of other industries, such as tourism and healthcare.
Impact on Small Oil Production Companies
If you were to take a look at some of the local oil producing communities in Texas, you might start to notice a little tension in the air. Many small time oil producers are concerned about the potential negative effects on their businesses. To minimize the impact, many of those businesses have started to scale back their operations. Now those businesses are starting to lose revenue. Some small businesses are not going to be able to ride out the storm without going into debt. And too much debt means the end of business.
For small crude oil production companies, long-term low oil prices are a deal breaker. Small businesses are simply not insulated or structured enough to sustain themselves for the duration of the current trend in oil prices. Many local communities that were benefiting from the increase in revenue are now in danger of losing out.
As the US continues to analyze the global impact of long-term oil prices, some economists are urging the government to strengthen the US dollar. While this may pose well for those who travel to other countries, strengthening the American dollar could backfire. Many economists feel that the government should adjust its stance on policy so that it can increase crude oil export to push the growth of US oil production instead.
Many people expect for the oil industry to take a big hit if oil prices don’t start to increase. It is projected that tens of thousands of jobs will be lost in many different sectors as a result of the long-term decline. Texas expects that its economy will be slightly affected since much of its revenue comes from its local oil communities such as the Eagle Ford.
The Effect on the Eagle Ford
Eagle Ford had very humble beginnings. Eagle Ford went from producing a few hundred barrels of oil and natural gas daily in 2008 to more than 1.6 million barrels of oil and natural gas daily in 2014. Surely, such a rapid expansion has to be offset by some sort of reduction. When oil prices were significantly higher, some oil companies in Texas, such as Marathon leased a great deal of land to drill. Although Texas has received hundreds of thousands of dollars in lease payments, it has yet to see the millions of dollars that it anticipated when approving the lease. In response to the low oil prices, some companies have decided to retrench. Comstock Resources announced in December 2014 that it was suspending its Eagle Ford oil drilling activity in Texas.
As the amount of drilling permits and rigs continue to decline, so will the abundance of energy jobs. Production will fall, and less revenue will be generated. While this has the potential to be catastrophic, some economists say that this is normal behavior, and it should be expected.