If There's A Surplus Of Cheap Crude, Why Do Oil Wells Keep Pumping?
STEVE INSKEEP, HOST:
And now we have a story of when the free market eats its own. The market in question is the one for oil. There is a global surplus. Producers around the world are pumping more than the world consumes.
RACHEL MARTIN, HOST:
They're pumping so much that prices have fallen. Oil is down to $35 a barrel, low enough that some independent companies are starting to go broke. And they can't seem to stop the producing.
INSKEEP: NPR's Wade Goodwyn has been asking, why not? And he begins his story along the coast of Texas.
WADE GOODWYN, BYLINE: At Coast Guard Station Galveston, Petty Officer second class Greg Helmers prepares to take his 45-footer out on patrol.
GREG HELMERS: So I got a four, may four.
UNIDENTIFIED WOMAN: Four is clear. Standing by three.
UNIDENTIFIED MAN: Coast Guard four, five, six, two, zero.
GOODWYN: It's another beautiful day of search and rescue and so-called high-interest vessel boardings and inspections, which, in these waters, includes a plethora of tanker ships.
(SOUNDBITE OF BOAT HORN)
GOODWYN: Helmers sounds his horn as he deftly maneuvers into the busy waters of Galveston Bay and heads for the Bolivar Roads Anchorage nearby. There a row of empty oil tankers sit high in the water, waiting their turn to move up the Houston Ship Channel and drink their fill. They load up and then go park.
Some captains head for the calm water of the doldrums at the equator, others the placid waters of the Caribbean. There they will drop anchor for months. The world is awash in cheap oil, and more and more tanker ships are being leased to store oil, not transport it.
DAVID CARR: My goodness, it looks like a tanker traffic jam down there on the Texas Gulf Coast.
GOODWYN: David Carr is the petroleum economist for the Texas Alliance of Energy Producers, which has 3,500 members.
CARR: The U.S. onshore storage facilities are - they're not quite maxed out but are getting uncomfortably close.
GOODWYN: More than 18 months into the market collapse, the culling of the financially venerable oil producers is proceeding in earnest. The failure of the major producing nations to agree on limits will only exacerbate the bankruptcies. In the U.S., pump jacks are nodding up and down like bobble head dolls on methamphetamine, even though there's no place left to put all the crude they're siphoning out. Karr Ingham.
KARR INGHAM: You've got thousands of individual oil and gas companies making these decisions on a day-to-day basis. And in a time of declining prices, your only source of revenue is to continue to produce as much out of your existing wells as you can.
GOODWYN: The bloodletting began at the start of the bear market in 2014. In an effort to drive weaker competitors out of business, the Saudis flooded an already saturated market with cheap crude. That touched off a worldwide extractor dive free-for-all. From Russia to Texas, producers prodigiously pump their existing wells to try to stay afloat. But as for drilling new oil wells, Ingham says that's over with, for now.
INGHAM: It's a bloodbath out here. The statewide recount went from about 905, 906 in late November 2014, fell below 200 last week. So we're seeing some horrifically low levels of activity out here.
GOODWYN: The employment numbers tell the story. In late 2014, more than 300,000 people worked in the oil and gas industry in Texas. A year and a half later, that number is down by more than 80,000 workers. What the market needs in order to recover is not rocket science. The world's oil producers simply need to stop pumping like there's no tomorrow. But they can't, or more accurately, they won't. Why not?
Ruth Krivoy is the former governor of the Central Bank of Venezuela, the world's fifth leading oil-producing country. Krivoy says it's gotten to where the oil-producing nations don't trust each other anymore. Nobody believes anyone else will actually stick to their production promises, a game of Pinocchios.
RUTH KRIVOY: The situation is driven by the need of oil-producing countries to protect their market shares. Essentially, efforts to organize producers right now - to have them freeze production or even cut production are highly unrealistic.
GOODWYN: All of which is to say, there are going to be even more oil tankers resting at anchor, filled to the brim. You can wave to the captain and his bored crew as you head outside the cove. If you're thinking about buying a pickup truck or that hot rod you've been eyeing with the 450 horsepower engine, now's probably a good time. Wade Goodwyn, NPR News, Dallas. Transcript provided by NPR, Copyright NPR.