Oil rich areas in California such as Kern County and Los Angeles County, along with in-state oil and gasoline companies such as Chevron, are facing a more and more likely industry collapse in the next several weeks due to both national and and international pressures.
California oil companies facing unprecedented pressures
For several months the oil industry had been facing greater uncertainty due to a possible US recession and greater fluctuations in oil prices. However, when coronavirus hit earlier this year a sudden drop in oil usage due to reduced worldwide air travel and a reduction in Chinese usage due to quarantine measures began severely lowering prices worldwide.
OPEC attempted to stabilize prices by introducing a Saudi Arabian backed production cap, but Russia didn’t agree and kept producing oil to get more money out of the lull. The Saudi’s stopped as well in an attempt to cajole the Russians, and with more and more countries in Europe, Asia, and North America not using air, rail, or car travel, prices tumbled even more.
The coronavirus and price wars immediately had an effect on the industry in California.
“Normally we have dozens of pumpjacks going right now,” said California oil well operator Louis Sackett. “Now I only have a few guys manning the few I have going. Oil was holding steady until late February, and since then it’s been nosediving.”
“Selling it from around $50 where it was last month to half that (As of March 25th crude oil stands at $24.18 per barrel), it just barely keeps the lights on. If it goes down any more I don’t know what I’ll do. No one’s using it now.”
Sackett isn’t the only oil worker in California feeling the pinch. San Ramon-headquartered Chevron instituted mass reductions and layoffs this month, with many others either following suit or preparing to. Other companies, such as Royal Dutch Shell, have instituted similar cuts. Oil production hasn’t slowed in California yet thanks to Governor Newsom listing workers in the industry as ‘essential’, but industry officials say it’s only a matter of time before a drop in output is recorded.
A hard hit Kern County
Kern County, the main oil producing county in California, is currently being hit hard, especially after granting approval last month for tens of thousands more new oil pumps whose construction and usage is now in jeopardy.
“The worst isn’t here yet,” noted former oil pump part manufacturer accountant Isaac Grunbaum. “I started two weeks before OPEC cut oil in 1973, and I’ve seen every up and down since then. And I haven’t been this worried about our industry since ’73. So many things are coming together in this at once.”
Many oil leaders in California are currently backing a reduced amount of foreign oil heading to refineries in California in order to protect local production.
“That’s a start,” responded Sackett to the idea. “But we need to address all of these workers losing their jobs and wells going down. If you want to save the oil industry in California it’s more than just keeping oil flowing. We need a fair price.”
“We’re often villainized on wanting nothing but profits, but a lot of that goes into maintenance and expansion and better conditions and pay for workers. And we can’t add to those keys to survival if prices remain this low.”
Currently gas in California is the lowest it has been since 2000, with prices statewide coming below $3.25 a gallon, and in many places, going below $3 a gallon.
The California Independent Petroleum Association, an oil trade group in California, has even noted that many wells will be closing soon due to the costs of keeping them open.
A looming Assembly bill
Critics also noted that, even if California’s oil industry stabilized, it will still face threats within the state. One Assembly Bill currently on pause because of the Legislature coronavirus shutdown, is set to cause disruptions for the industry. AB 3217, authored by Assemblyman Todd Gloria (D-San Diego) would give disclosures about the makeup of oil used by California suppliers and refiners. Under the “Know Your Oil” bill, it would automatically inform the public on not only the composition of the oil being used, but also its environmental impact.
“It’s good information presented in the wrong way,” explained Sackett. “It will automatically tell the public raw data, without any analyzation from experts or nuance. If we survive this trade war and virus, this may give us less business overall.”
“Right now it seems so far away because we’re trying to keep production going to keep cars going and people employed in California. AB 3217 would just cause more damage at this point.”
With current and future issues poised against the oil industry in California, many industry leaders are gearing up for a similarly disadvantageous April.