Quantcast

Is Fracking Industry Too Wounded to Respond as Oil Prices Bottom Out?

Energy

Eventually what goes down, must come up. And to the relief of everyone in the oil industry, the global energy watchdog, the International Energy Agency (IEA) believes that there are signs that oil prices “might have bottomed out.”

The IEA goes onto hope that “there may be light at the end of what has been a long, dark tunnel,” before warning that “we cannot be precisely sure when in 2017 the oil market will achieve the much-desired balance.”

The shale industry has shed more than 100,000 jobs in the last year and these cannot be replaced at a click of the fingers. Some 60 percent of fracking equipment is idle or offsite.

The oil price is certainly showing signs of recovery. Indeed, in its latest monthly report, the IEA notes that oil prices have risen by a whopping forty percent since early February.

But as the OilPrice website notes, much of this rise has nothing to do with the fundamentals of the oil market—supply and demand—it is due to the fact that speculators believe the price could go no further down.

As they say: “Much of the rally has a lot more to do with market sentiment than with the fundamentals. Oil speculators have closed out a huge chunk of their short positions, making bets that oil prices had reached a bottom. The short-covering rally contributed to a sharp jump in prices.”

“We’ve got the bottom in for oil,” argues influential trader Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which runs a portfolio of $3.4 billion. “Gasoline demand is improving and we have a strong speculative participation in the market. You are building a base for oil to trade between $30 to $50.”

Whether this recent rise is actually good for the oil industry is open to debate. Some analysts believe that the rise could become “self-defeating” as it will allow some American shale producers to ramp up production, after moth-balling certain operations due to the price plunge.

One such analyst Jeffrey Currie, the head of commodities research at Goldman Sachs, argues “My concern is if the market surges right back to $50 a barrel … we just end up with another problem six months from now.”

But whether the U.S. shale industry can just crank up production and act as what is known as a “swing producer,” is now open to debate.

Restarting production overnight is just not going to happen. The shale industry may have cut itself too close to the bone to be able to start running again.

The industry has shed more than 100,000 jobs in the last year and these cannot be replaced at a click of the fingers. Some 60 percent of fracking equipment is idle or offsite.

Alex Beeker, a Wood Mackenzie analyst says simply: a recovery “doesn’t happen overnight.”

Others agree. According to today’s Wall Street Journal “As oil prices show some signs of stabilizing, American producers and oilfield-services companies are warning that they may not be able to jump-start drilling.”

The Wall Street Journal argues that the reason for this is that “many independent companies are too financially strapped, have let go too many workers or have idled too much equipment to immediately ramp up again.”

John Hess, the chief executive of Hess Corporation tells the paper: “The balance sheets of these shale-only producers have to be repaired for them to get back to drilling. That’s going to curb any recovery.”

Others are equally cautious. Lynn Helms, director of North Dakota’s Department of Mineral Resources is quoted as saying, “If you’ve been on a strict diet for a long period of time, it takes a while to put the weight back on.”

Indeed, the boss of one fracking company, Basic Energy Services, which has laid off more than 40 percent of its workforce, told a conference last week: “We have lost a lot of good people. They won’t be back.”

YOU MIGHT ALSO LIKE

Obama to Limit Arctic, Atlantic Offshore Oil Drilling as Part of New Five-Year Plan

Oregon Becomes First State in Nation to Sign Bill That Phases Out Coal, Ramps Up Renewables

Duke Energy vs. Solar Energy: Battle Over Solar Heats Up in North Carolina

Women on the Front Lines Fighting Fracking in the Bakken Oil Shale Formations

EcoWatch Daily Newsletter

By Jennifer Molidor, PhD

Climate change, habitat loss and pollution are overwhelming our planet. Thankfully, these enormous threats are being met by a bold new wave of environmental activism.

Read More Show Less

President Donald Trump mocked water-efficiency standards in new constructions last week. Trump said, "People are flushing toilets 10 times, 15 times, as opposed to once. They end up using more water. So, EPA is looking at that very strongly, at my suggestion." Trump asked the Environmental Protection Agency (EPA) for a federal review of those standards since, he claimed with no evidence, that they are making bathrooms unusable and wasting water, as NBC News reported.

Read More Show Less
Sponsored
(L) Rushing waters of Victoria Falls at Mosi-oa-Tunya National Park, Zimbabwe pictured in January 2018. Edwin Remsberg / VW PICS / UIG / Getty Images (R) Stark contrast of Victory Falls is seen on Nov. 13, 2019 after drought has caused a decline. ZINYANGE AUNTONY / AFP / Getty Images

The climate crisis is already threatening the Great Barrier Reef. Now, another of the seven natural wonders of the world may be in its crosshairs — Southern Africa's iconic Victoria Falls.

Read More Show Less

Monsanto's former chairman and CEO Hugh Grant speaks about "The Coming Agricultural Revolution" on May 17, 2016. Fortune Brainstorm E / Flickr

By Carey Gillam

Former Monsanto Chairman and CEO Hugh Grant will have to testify in person at a St. Louis-area trial set for January in litigation brought by a cancer-stricken woman who claims her disease was caused by exposure to the company's Roundup herbicide and that Monsanto covered up the risks instead of warning consumers.

Read More Show Less
A volcano erupts on New Zealand's Whakaari/White Island on Dec. 9, 2019. Michael Schade / Twitter

A powerful volcano on Monday rocked an uninhabited island frequented by tourists about 30 miles off New Zealand's coast. Authorities have confirmed that five people died. They expect that number to rise as some are missing and police officials issued a statement that flights around the islands revealed "no signs of life had been seen at any point,", as The Guardian reported.

"Based on the information we have, we do not believe there are any survivors on the island," the police said in their official statement. "Police is working urgently to confirm the exact number of those who have died, further to the five confirmed deceased already."

The eruption happened on New Zealand's Whakaari/White Island, an islet jutting out of the Bay of Plenty, off the country's North Island. The island is privately owned and is typically visited for day-trips by thousands of tourists every year, according to The New York Times.

Michael Schade / Twitter

At the time of the eruption on Monday, about 50 passengers from the Ovation of Seas were on the island, including more than 30 who were part of a Royal Caribbean cruise trip, according to CNN. Twenty-three people, including the five dead, were evacuated from the island.

The eruption occurred at 2:11 pm local time on Monday, as footage from a crater camera owned and operated by GeoNet, New Zealand's geological hazards agency, shows. The camera also shows dozens of people walking near the rim as white smoke billows just before the eruption, according to Reuters.

Police were unable to reach the island because searing white ash posed imminent danger to rescue workers, said John Tims, New Zealand's deputy police commissioner, as he stood next to Prime Minister Jacinda Ardern in a press conference, as The New York Times reported. Tims said rescue workers would assess the safety of approaching the island on Tuesday morning. "We know the urgency to go back to the island," he told reporters.

"The physical environment is unsafe for us to return to the island," Tims added, as CNN reported. "It's important that we consider the health and safety of rescuers, so we're taking advice from experts going forward."

Authorities have had no communication with anyone on the island. They are frantically working to identify how many people remain and who they are, according to CNN.

Geologists said the eruption is not unexpected and some questioned why the island is open to tourism.

"The volcano has been restless for a few weeks, resulting in the raising of the alert level, so that this eruption is not really a surprise," said Bill McGuire, emeritus professor of geophysical and climate hazards at University College London, as The Guardian reported.

"White Island has been a disaster waiting to happen for many years," said Raymond Cas, emeritus professor at Monash University's school of earth, atmosphere and environment, as The Guardian reported. "Having visited it twice, I have always felt that it was too dangerous to allow the daily tour groups that visit the uninhabited island volcano by boat and helicopter."

The prime minister arrived Monday night in Whakatane, the town closest to the eruption, where day boats visiting the island are docked. Whakatane has a large Maori population.

Ardern met with local council leaders on Monday. She is scheduled to meet with search and rescue teams and will speak to the media at 7 a.m. local time (1 p.m. EST), after drones survey the island, as CNN reported.