It’s been a volatile time in the U.S. oilfield. As recently as October, a litany of analysts and traders and speculators lined up to tell the world exactly when the price of crude oil would break the fabled $100 barrier. Projections differed, but it seemed as though the halcyon days of pre-crash 2014 were not far away.
Jump forward a month or so and prices are in the tailspin, tumbling by nearly a third with further price falls likely to come. Now, a blue wave that saw huge Democratic gains in the 2018 midterm elections has injected even more uncertainty into the industry. So, where do things stand and how are they likely to change as the most recent class of political victors get ready to take office?
The Only Certainty Is Uncertainty
Volatility in the oil markets is seemingly a tale as old as time. Still, the recent swings in the state of oil have been even more surprising than usual. A leaner and more disciplined approach on the part of oil companies, combined with recovering demand and falling extraction prices, led to a robust surge in fortunes through most of 2018. Prices surged, drilling picked up in pace and the industry seemed on track for an extended run of success. Production has continued to increase nearly unabated, particularly in the massive oilfields of Texas, North Dakota, Colorado and New Mexico.
However, fortunes can change quickly. Demand has fallen of late, driven in part by an increasing focus on renewable energy technologies and a continued rise in the popularity of electric vehicles. It’s been estimated that the rise of electric vehicles will render nearly 280,000 barrels per day unnecessary by the end of the year. China, in particular, has gone all-in on electric vehicles. The government has stated its intention to put at least two million electric cars on the road by the end of the decade.
Still, the U.S. oilfields have yet to feel the pinch. They remain as prolific as ever, setting records and continuing to recover from the depths of the 2014 crash. New technologies and falling operating costs have put more oil than ever within reach of producers in the United States. Indeed, the most serious hurdle ahead may have nothing to do with economic or technological factors at all.
Will the Blue Wave Wash Away Gains?
It may not have been a presidential election, but the 2018 midterm season may nonetheless have been one of the most consequential in recent memory for the U.S. oilfield. In the short term, oil producers faced immediate hurdles in several states in the form of ballot initiatives aimed at curbing aspects of the industry. Colorado Proposition 112 would have required a 2,500-foot setback for all oil and gas developments in the state, effectively rendering a significant portion of the state’s reserves off-limits. Washington voters, meanwhile, went to the polls to decide on a statewide carbon tax. In a break for the industry, both measures failed to bring in the required votes.
Elsewhere, federal and state-level races may be more troubling for oil producers over the long term. Democrats racked up big wins in gubernatorial races around the country, giving them much greater control over direct policy concerns. Michelle Lujan Grisham, who won the gubernatorial race in oil-rich New Mexico, will be in a position to push for the same drilling regulations she proposed as a state representative. Grisham, along with incoming Democratic governors in Nevada and Maine, will also be in a position to decide on renewable energy initiatives that had been rejected by their Republican predecessors.
The Democratic Party is also poised to seize control of the U.S. House of Representatives, breaking a Republican grip on the federal government and providing a check on President Trump and his party. The president has been vocal in his commitment to “American Energy Dominance,” a program of deregulation and other policies aimed at exploiting a greater share of the vast shale reserves beneath the country. Many incoming Democratic representatives, however, have run on platforms committed to restricting new drilling and focusing greater attention on alternative energy sources. The looming battle between the two parties, the newly divided Congress and the embattled president will likely play a key role in determining the near future of the American petroleum industry.
The Great American Oil Boom
Amid all the uncertainty and political bickering, the U.S. oil industry remains in a positive place overall. The number of drilling rigs has increased slightly, but there hasn’t been a sudden frenzy like the one that contributed to the 2014 collapse. Nonetheless, initiatives to increase recovery from existing sites has led to a substantial increase in overall production. Indeed, production has strengthened to the point that the United States has become a real player in global petroleum exports. The International Energy Agency has even reported that the United States is expected to account for around half of all global petroleum growth by 2025.
As always, however, the long-term picture isn’t entirely rosy. One short-term problem is a capacity crunch that has left some players scrambling to transport all of the oil being produced. Recent market fluctuations have also cast some doubt on the degree of new spending producers can justify heading into 2019. Going forward, escalating trade conflicts have also called into question the availability of the vast Chinese market. Selling to China is essential to the continued growth of the U.S. oilfield, but the situation remains unclear thanks to a brewing trade war and mounting threats of undercutting from other suppliers.
The current state of the oil industry is still far better than it’s been for some time. Plummeting oil prices are still double what they were during the worst stretches of 2016. Many in the oilfield will take a hit of some magnitude, but it currently seems unlikely that massive budget issues and closures are in the offing. This reality is due in part to the more restrained, efficient approach producers have adopted since the last major crunch. There may be rough waters ahead, but most companies have learned in recent years how to hold the course and sail toward smoother seas.
In many ways, the oilfield has existed for several years in a state of flux. Mounting climate concerns, political turmoil and volatile demand have been balanced against a seemingly ever-expanding supply as producers further tap into the true potential of U.S. shale reserves. The 2018 midterms will undoubtedly play a significant role in shaping energy policy and oil fortunes well into the future, but recent history suggests the oilfield still has much to offer.
