Putting the “Oil” in Turmoil: The Destabilizing Effects of Cheap Gas
Oil prices have been on a generally downward slope since 2014. Prices may rise and fall in the short term, but for the long haul, they’re getting progressively lower. In fact, earlier this month oil dipped below $40 a barrel—the lowest it’s been in 4 months. To anyone who regularly fills up their car at the pump, this may seem like good news. However, for the oil industry and those who invest in it, it’s a symptom of a failing industry.
Increasing Job Cuts
Cheaper oil prices make it difficult for oil companies to sustain themselves. As a result, nearly 200,000 oil industry jobs have been eliminated over the last two years. While other fields are creating new jobs and finally recovering economically, the oil industry is rapidly shrinking.
Not only that, but the jobs being eliminated are some of the best-paying available. Positions in the oil and natural gas industries pay around 84% higher than the national average, making these losses a serious blow to our overall economy.
And things are only getting worse. Around 95,000 of the lost jobs mentioned above occurred this year alone—culminating in July, with a sudden 796% increase in layoffs, leading to nearly 18,000 lost jobs.
The Oil Debt Bomb
The current oil problem is exacerbated by the so-called “oil debt bomb” that’s been plaguing the industry for several years. It began in 2008, when the buzzword was “Drill, baby, drill!” All the major oil companies were encouraged to drill as much as possible, to increase the supply of oil, natural gas and other forms of energy—which at the time were becoming somewhat scarce.
To cover the cost of this increased drilling, the oil industry took out billions of dollars in loans, thinking it would all be worth it when they struck oil, both literally and figuratively. And strike oil they did. But the vastly increased supply of petroleum forced the price down significantly. As a result, companies couldn’t generate enough revenue to cover the loans they took out. Now they’re getting ready to default on those loans, sending the entire industry into a downward spiral.
Can the oil companies recover from this massive blow? Perhaps, in time. But it’s going to take a while. Goldman Sachs has postulated that the layoffs may have created a talent shortage in the industry, which will eventually need to be filled again. They further estimate that by the end of 2018, the industry may need to re-hire between 80,000 and 100,000 new people. Of course, that’s only about half the number of people that the industry has lost so far. So a full recovery, if it happens at all, will take at least a few years.
In the meantime, things look like they’re going to get a lot worse before they get better. After all, billions of dollars in defaulted loans are what sparked the 2008 recession to begin with. If it happens again, we could see another serious economic crisis that takes years to recover from.
So the long and short of it is we have another debt disaster brewing along the lines of the Great Recession. Last time you had precious little warning, but you had longer to recover before you needed your retirement funds. This time you only have a warning.