OPEC’s decision to maintain production levels instead of cutting them caused oil prices to plummet, leading some analysts to predict a “pullback” in domestic oil production.
The price of U.S. crude fell by 10 percent Friday to $66.15 a barrel after the oil cartel decided at its meeting in Vienna on Thursday to leave production at 30 billion barrels a day. Member nations are worried they’ll lose market share if they lower production.
Shares of companies across the energy industry fell, with Chevron sliding 5 percent and Irving-based Exxon Mobil falling 4 percent. Halliburton, the oil field services company, saw its shares drop nearly 11 percent.
Bernard Weinstein, an economist at Southern Methodist University’s Maguire Energy Institute, said it is too early to tell the full impact of the falling oil prices. But for Texas, the No. 1 oil- and gas-producing state, it is not “good news.”
“I think we’re definitely going to see some pullback. We’ll see the rig count go down,” Weinstein said. “Wells that are already producing will not be shut down, but we’ll see less drilling activity.”
Tom Kloza, chief oil analyst at the Oil Price Information Service, had told the Star-Telegram that Thanksgiving week would be a “Super Bowl week on oil fundamentals” because of the OPEC meeting. He now expects the price to fall an additional $5 or $10 a barrel before stopping.
“It’s that kind of rout,” Kloza told The Associated Press on Friday .
Partly because of the shale production boom in the U.S., the world is awash in oil at a time when demand from major economies is weak — so prices are falling. Citibank analysts wrote in a report Thursday that global supplies exceed demand by about 700,000 barrels a day now.
Overall, the slide is a boon for consumers, with gasoline prices at their lowest point since 2010.
The national average was $2.79 on Friday. Kloza expects gas to eventually be a full $1 below its June peak of about $3.70 a gallon. That would save typical households $60 a month for those that burn 60 gallons of fuel.
“It’s a nice easy calculation,” Kloza said. “These are numbers that we would have regarded three or four months ago as something from the lunatic fringe.”
The bottom should come between $2.50 and $2.70, Kloza said.
But there are some negatives to the euphoria over paying less at the pump, Weinstein said.
A decade ago, the oil and gas industry accounted for about 2 percent of the gross domestic product. Now it’s more like 8 percent, he said.
Besides the energy companies themselves, the industry includes those that provide materials needed for drilling, he said.
The companies that will immediately feel the impact are the small to midsize energy firms that started in the past few years and took on too much debt, he said.
“They went to the bank and they borrowed $100 million and so their revenue stream is down and they can’t cover their costs,” Weinstein said. “They will cut back first.”
So a big drop in the price of oil sends a “ripple effect throughout the economy,” Weinstein said.
This report includes material from The Associated Press.