Yemisi Izuora/Agency Report
The oil industry, with its history of booms and bust, is currently mired in the worst downturn since the 1990s. Earnings are down for most oil companies throughout the globe, leading to decommission of more than two-thirds of their rigs and severe cuts in investment.
The cause is the plunging price of a barrel of oil, which has fallen more than 70 percent since June 2014.
The worst-case scenario of oil and gas companies going bankrupt is not just a theory anymore as it has already happened in places around the world.
“A total of 250,000 oil workers have lost their jobs worldwide,” said Catherine Hooey, professor in geography. “Redwater Energy, Alberta oil and gas company in Canada is a case in point. As a consequence, millions of people are now unemployed.
According to the New York Times, the British oil giant BP announced on Tuesday that it would eliminate 4,000 of the approximately 24,000 positions in its exploration and production units this year. This figure, when compiled to roughly 4,000 employees that the company laid back last year, would trim its work force to about 80,000.
Hooey also points out the environment degradation caused by the excess supply of oil is worth noting.
“The entire time countries have fought over supplying more and more oil, pollution generated from fracking, piping and whatnot have led to absolute destruction of ecosystems, completely devastating the cycle of nature.”
The catch, however, is that for certain countries, namely Saudi Arabia, adversity has rather served as an opportunity.
“Meanwhile, Saudi Arabia has built solar panels in the country with the profit made off its abundant resource: oil.”
The Organization of the Petroleum Exporting Countries (OPEC) include 12 member states: Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.
“OPEC was formed mainly to exclude the Soviet Union in the 1960,” Hooey said. “Saudi Arabia has superfluous amount of oil reserves and it has the capacity to put pressure on oil companies in the North America like U.S. Shale companies. Now that even OPEC countries are feeling desperate due to the low price of oil, Saudi Arabia and Russia have reached a preliminary agreement to freeze oil output to finally raise the price.”
Indeed, Bloomberg Business reports that the negotiation signaled “the first significant cooperation between OPEC and non-OPEC producers in 15 years.” Yet, the animosity and rivalry between Shi’a administered Iran and Sunni majority Saudi Arabia, which goes back to 1979 or perhaps even before, have prevented the plan of freezing oil output from moving forward for the time being.
New York Times states that despite the fierce competition of oil production, U.S. domestic production has actually doubled over the last several years, pushing out oil imports from Saudi, Nigeria and Algeria. In need of finding a new consumer, Saudi, Nigerian and Algerian oil is suddenly competing for Asian markets. But with the decline of oil consumption in China because of its economic slowdown, the producers are forced to drop prices.
“The United States and Canada should not be exporting the extra supply of oil,” said Steve Harmon, professor in history. “Although there are many complicated factors involved, the situation has gotten out of control because American oil companies are still selling off oil to satiate their greed.”
Harmon adds that he thinks the oil price will remain low for some time and forecasts that prices will remain that way well past spring break.
“Gas price recovered a few times last year, but a barrel of oil has already sunk this year to its lowest level since 2004,” he said. “Gas will still be cheap so there’s a good news for students who are planning to go on a trip by driving.”