US Oil Industry Collapse Will Negatively Impact US Economic Recovery
America will overcome the virus and will go back to work (you can pick the date). However, the US economy will not experience the rapid “rebound” that so many politicians and analysts talk about.
The collapse of the US oil industry will result in the number of drilling rigs working in the US to decline from approximately 780 drilling rigs in January, 2020 to most probably under 300 drilling rigs in December. The number of hydraulic fracturing spreads operating in the US will decline from approximately 450 in January, 2020 to most probably less than 50 in December. Layoffs will approach 100,000. Each person losing their job in the oil & gas industry is equivalent to losing 2.0 to 2.5 jobs in the retail industry since these are high paying jobs (often $80,000 to $100,000 per year working in the oilfields, trucking, manufacturing).
Put another way, a reduction in oil & gas spending of approximately $100 billion in 2020 will have a negative impact on other related industries such as manufacturing, transportation, hotels, restaurants and other service-related industries totaling over $300 billion in negative economic impact that will impede the “rapid rebound” in the US economy in Q3 and Q4, 2020.
When analysts begin to talk about the slower US economic recovery in Q3 and Q4 and attribute it to folks not being fully comfortable returning to restaurants, hotels and other high density environments, they will fail to think about the fact that those folks who would normally use these services in the normal course of business and commerce are no longer employed due to the collapse of the US oil industry.
Think about it. When the oilfield worker travels across the US servicing wells, drilling & completing wells, they are staying at the local Holiday Inn Express, eating out at the local diner and consuming goods and services (wearing out tires on trucks and using other consumables). The dollar spent at the restaurant with the waitress is later then spent at the beauty shop and so forth to the point that the dollar spent will have circulated through our economy 2 – 3 times.
But now with the collapse of the US oil industry, the folks who would normally help drive the rebound in manufacturing (for new drill bits, wellheads, packers, frac trees, valves, …), transportation to logistically move these goods (trucking jobs and consumables on the tires, trucks and planes), hospitality sector, restaurant industry and service industries goes away because of this $300 billion + drag in the economy that is being overlooked.
Sure, low oil prices are good for the US economy to a point. But then they become destructive.
Time is of the essence for President Trump to act to engage Saudi and Russia to reduce production sharply now and for the next 60 days by as much as 20 million barrels with the support of other OPEC and non-OPEC producers. US needs to purchase US oil and fill the SPR and place tariffs on imported oil set to $50 per barrel. This will help to preserve jobs and support a more rapid rebound for the US economy in Q3 and Q4, 2020.
Again, time is of the essence. Call your representatives in Congress and let your voice be heard.