Created: April 20, 2020 09:52 PM
ALBUQUERQUE, N.M. — Crude oil prices in the U.S. dropped by almost 300% Monday to turn negative.
What that means is producers would be paying buyers to take oil off their hands. In New Mexico, the oil and natural gas industry account for about one third of the state’s general fund revenues.
Monday’s price plummet reflects that there's too much oil, and not enough demand. For New Mexico, that means a decline in oil production.
A spokesperson for the State Oil and Gas Association said some producers are choosing to shut in some wells, and others are considering doing the same.
That means layoffs, especially in the southeast region, and massive revenue loss.
“It’s a huge part of our economic foundation, and that’s why it’s absolutely vital that we recover in a way that allows our industry to bounce back and to continue to deliver for New Mexico,” said Robert McEntyre, spokesman for New Mexico Oil and Gas. “But last year we produced 328 million barrels of oil—we're not going to produce that much oil this year. The demand is not there.”
McEntyre said oil and gas production is responsible for around 134,000 jobs in our state. It’s responsible for 39 percent of our state's budget or around $3 billion dollars.
He expects recovery to closely mirror that of the coronavirus recovery. As more people leave their homes and get back to daily life, demand will increase.
Dr. Reilly White, associate professor of finance at UNM, said the damage to our state’s economy will be significant.
“I really think we need to focus on our ability as a state to minimize these bad times, and try to realize even when oil prices are good, it’s never forever. Consequently, budgets and planning, which are cognizant of these things across the state have to continually adapt and be more proactive,” said Dr. White.
Consumers will still have access to gas at the pump and natural gas on the stove, but the state will have to consider the shortfalls in the budget. Lawmakers have been closely watching these numbers to figure out what will need to be done. White said that's really to be seen when the recovery efforts start.
Futures for the month of June will begin on Wednesday. McEntyre said those are currently hovering around $20 a barrel.
“Our hope is that oil prices rebound due to increased demand, reduced supply that puts our producers back online. But it does expose, frankly, our reliance on a very volatile market,” said Dr. White.
Our state leaders have said we will need a special session to address these shortfalls.
Democratic state senator John Arthur Smith sent KOB 4 the following statement:
“We’ve been focusing on falling oil prices and production for some time now. If there’s anything positive about today’s shocking price drop, it’s that the public is now also keenly aware of the severity of the problem we’re facing. There’s no question that the fixes are going to be painful for everyone. It’s not going to be pleasant, but it’s not insurmountable.”
From Republican House Representative Jim Townsend from Artesia:
"The drop in oil prices are wreaking havoc on our state budget. The drop in demand in oil is being exacerbated by the economic shutdown. Until we meet as a legislature to pass economic relief, readjust our spending, and begin to responsibly open New Mexico back up for business, this is only going to get worse."
KOB 4 also reached out to the Governor’s office. A spokesperson sent the following statement:
“As soon as it is safe to convene a special session to address the vast economic needs of New Mexicans given this pandemic, it will be convened. Certainly, the news about oil prices today is of great concern, but the state has robust reserves for the very purpose of making it through a lean time.”
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