Economy may face a ‘slow and policy-fueled crawl back’
As expected, the Oklahoma Energy Index contracted sharply in April. Oil and natural gas activity fell by 14.3 percent to an index reading of 102.8 – just above the baseline of 100 indexed to the base year of 2000. Total energy activity in the state is now down 44 percent from a year ago with the pace of decline accelerating into the deepest contraction in the last 20 years.
All index components were down again in April. Rig activity fell by 43 percent with April’s weekly rig counts averaging only 25. Rig activity continued to fall into May with new drilling all but halted in the state. Oil prices fell precipitously in April before outright collapsing in May to headlines of negative prices. Many of the headlines were driven by expiring futures contracts and an unwillingness to accept physical delivery of the commodity, but the underlying weakness in energy demand is real. Most important, energy sector job losses mounted in April with primary exploration and production employment down 7.6% and support employment down 6.1 percent. Job losses will continue in the months ahead as drilling budgets continue to be slashed and producers shift into a production holding pattern.
“There remains a legitimate concern that markets are overplaying the economic recovery as we move into summer,” said Dr. Russell Evans, Executive Director of the Steven C. Agee Economic Research and Policy Institute at Oklahoma City University. “A relaxing of the most severe restrictions on social gathering is certainly allowing an economic recovery to materialize, but economic activity will quickly stabilize well below 2019 levels.”
David Deardeuff, Senior Vice President at INSURICA agreed. “2020 has been a very challenging year for companies of every size, especially service companies which have been impacted not only by the price war, but also by their challenge of connecting with customers and prospect in a COVID-19 world. We are all eager to put the past 90 days behind us as we move forward toward our new normal,” Deardeuff said.
According to Brook A. Simmons, President of The Petroleum Alliance of Oklahoma, the world economy may face a “slow and policy-fueled crawl back to full economic health.”
“We are in the midst of the storm. There are dark clouds, destruction, and obstacles in our way. There is little optimism global energy demand will quickly rebound to resume the track of growth necessary to return Oklahoma’s energy sector to pre-coronavirus levels of activity immediately, but storms pass and we will rebuild,” Simmons concluded.
The Oklahoma Energy Index is a comprehensive measure of the state’s oil and natural gas production economy established to track industry growth rates and cycles in one of the country’s most active and vibrant energy-producing states. The current index is a joint project of INSURICA, The Petroleum Alliance of Oklahoma, and the Steve C. Agee Economic Research and Policy Institute.