BRADFORD, Pa. — It turned from bad to worse for local oil producers as Penn Grade crude oil plummeted to just 10 cents per barrel on Monday, an unprecedented low.
The drop was the bottoming out of a month-long trend that has seen oil prices continually decrease amidst uncertainty regarding the COVID-19 pandemic. Demand for crude oil is at a near standstill as entire industries are on hold.
Crude oil was selling for as high as $43.18 per barrel for local companies on March 3, before the pandemic caused a gradual decrease in price. By March 31, prices were down to $16.48, and then sank to $14.27 per barrel for three days leading into Monday’s pitfall.
According to Mark Cline, president of the Pennsylvania Independent Oil Producers (PIPP) organization as well as operator of Cline Oil, local producers were already feeling the effects of a tough market.
“Even before (prices) bottomed out yesterday, we had laid everybody off. Just about every company around here is down to one or two people,” he said. “What happened yesterday… I don’t know if any of us have recovered from the shock of it yet. It’s never happened like that before.”
The impacts aren’t just contained to local producers and refineries, either. Rep. Martin Causer, R-Turtlepoint, said it’s a supply-and-demand issue that has impacted the industry across the nation as well as here in McKean County.
“Right now, people aren’t driving and companies are closed. It definitely has an impact on our local economy and it’s also a national issue,” he said, adding, “Short-term, worldwide there needs to be a reduction in production because there really is a supply-and-demand issue. Long-term, we need oil prices to come back up.”
Causer added that in some areas, oil prices went into the negative range.
“We’ve never seen that before,” he noted.
In order to ease the imbalance between the supply and demand, Cline said production will come to a halt.
“There probably won’t be any production for a while. Nobody in the world can sell oil,” he said. “I was on the market at 20 cents a barrel (Tuesday). Around here, we need $50 a barrel just to break even.”
Slowing production and capping wells won’t come easy, though. The process is costly and comes at a time when many local producers simply don’t have expendable finances because of tough times that began before the pandemic.
“It’s devastating. These companies that have a lot of equipment, they aren’t worth anything. You couldn’t sell them for pennies on the dollar,” Cline said. “We’re at a point, because the last couple of years have been so tough, that we don’t have money to plug wells, but we can’t keep producing.”
He added, “Twenty or 30 years ago they said we’d run out (of oil), and now there’s so much we don’t know what we’ll do with it.”
And that spells trouble for the road ahead. According to Cline, employees that were laid off were still holding out to eventually return, but the forecast for oil pricing isn’t favorable for that to happen right now.
“With everything I’m reading, even if the virus ended tomorrow and was completely gone, the big oversupply of oil will take a year or year-and-a-half to burn through,” Cline said. “Nobody is forecasting oil any higher than $25 or $30 a barrel next year. Personally, I don’t think our (local) industry is going to make it.”
Add in the fact that, according to Cline, some companies have been forced to live off of savings in the last two years because of lower prices, and matters become even worse.
“They won’t make it through the summer,” Cline said.
Producers aren’t the only local businesses that will be impacted, either. Without production of crude oil because of the imbalance with demand, local refineries face a tough road ahead, as well.
“Even if we lose, say, a half or a third of our producers, that’s not going to be enough oil to run two refineries. There’s one in Bradford and one in Newell, West Virginia,” Cline said. “They run off of (Pennsylvania Grade) crude oil. If they don’t get enough oil, there’s no use for refineries. I don’t know how refineries will survive if we’re not producing oil.”
A spokesperson for American Refining Group said no one was available to speak on the issue on Tuesday.