So… instead of tooting my own horn about topics on which I’ve expanded recently (because I’m soooooo modest), I will let others from around the web do my talking for me:
You may recall that I mentioned that sales tax revenue, as opposed to some fancy economic index, is the correct measure of how much the oil and gas industry has already been impacted by low commodity prices… Check out this piece from CNBC, in which an A&M Economist (there’s an Aggie economics joke in there somewhere, says this former Longhorn) says that the industry impact is most felt in the service industries, such as fast-food and retailers (hint: industries that collect sizable sales tax receipts). This article also supports my contention that there have been phantom, unreported and under-reported layoffs in the oilfield – the experts now indicate that the total number of lost jobs in the oilfield is now somewhere between 56,000 and almost 80,000 in Texas alone. (Look back to my posts regarding the use of “independent contractors”, a factor which has been ignored by both state and federal regulators of employment – and one used heavily by local industry to shield themselves from scrutiny during a downturn.) To put that in perspective, that means that somewhere between 18.3-26.1% of the oilfield employees have already been laid off in Texas. These are Great Depression level figures.
Additionally, I’ve been arguing for some time now that oil prices will not recover in the near term due to macroeconomic factors… factors which American exploration and production companies have little control. Welcome to the party, Forbes.
Another hot topic on this blog has been the fact that any uptick in price on oil-based commodities (gasoline, distillates, etc.) will be followed quickly by a surge of price-taking by independents that are increasingly desperate for cash flow. Marketwatch joins in with this confirmation.
Perhaps the most depressing part about being right in this scenario is that being right has done little to shake the confidence of pundits… See, for example, the articles above. Almost everyone of them will cite to some economist who says that OPEC’s strategy is working because oilfield producers are shutting down production.
As I rail on, almost continuously, each time some lowering of inventory happens it is a short-term event. Tomorrow (figuratively speaking), this temporary reduction will drive the price up just a smidge… then ALL of these “taps” that are supposedly “shut off” will spring to life and flood the market with a bubblin’ crude.
Again, as the chorus goes, this cycle will continue until such time as many, many, many of these oilfield companies end up finally dying what apparently has to be a prolonged, painful death. The real question is how contagious this sickness will be for the banks, the support companies, and the oilfield services firm until those deaths take place. Unfortunately for places like West Texas, those companies are the real foundation of the economy (as, again, I have argued before).
Are people starting to read this blog, or what? Slate just got in on the action today (December 11th). Where else have you read that the downturn in oil prices is an unmitigated good for the whole economy, despite what you might be hearing from concentrated sources? Why, right here and your humble Wolf Camp blog, of course!!!