Why Oil Prices Will Remain Low Longer

Quotes from Karr Ingham speech at the Houston Petroleum Club luncheon on Tuesday. Karr Ingham is a professional economist who lives and works in Amarillo, Texas. He is the owner of Ingham Economic Reporting, an economic analysis and research firm that specializes in the indexing and tracking of regional and metro area economies.

At this point, it seems quite safe to assume the Texas Petro Index will remain in decline for at least the first half of 2016 and perhaps most of the year.

If prices [do] not recover quickly and not rise much higher than they are now for some period of time, then the outlook in terms of overall activity levels and employment, in particular, is fairly dire," he said. "That’s not an industry that needs as many jobs on the payroll as it has right now.

The total job loss (and all of that may not have happened yet) - with a multiplier of 4 - to 288,000 or so, ... Oil companies are always buying materials. When prices go down 60-70%, these companies are purchasing 60%-70% fewer supplies, and they need less workers.

The reason why prices will likely remain lower for longer is that a meaningful slowdown in oil production is the "last domino to fall." It's only been after a slash in the rig count, thousands of lay-offs, steep spending cuts and major project cancellations that US (and Texas) oil production has begun to slow. If this order of causation were reversed, with a slowdown in production occurring first, the resulting supply contraction would likely be more supportive of prices. "The last domino to fall should be the first domino to fall," Ingham said.

Source: Oilpro