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Oil price drop disrupts steady recovery

20190325-bc-oilactivity

A pump station on the Kern River Oil Field.

Prospects for greater employment in local oilfields suffered a setback Tuesday as global oil prices gave up recent gains amid new concerns about the fight against COVID-19 in Europe and India.

Kern County oil benchmark Midway-Sunset fell more than $3 per barrel to its lowest level since early February, threatening a gradual recovery that had lifted prices more than 160 percent since the early weeks of the pandemic a year ago.

Although barrel prices could bounce back in the near term as economic activity ramps up along with progress on vaccinating people against COVID-19, market fluctuations like Tuesday's tend to weigh against hiring in local oilfields because they undermine oil producers' confidence that prices won't slip again.

That uncertainty, combined with industry frustrations about California's slow oil permitting processes, has tempered optimism at Aera Energy LLC about what had been a gradual improvement in prices.

"Stable prices over a long period of time enable companies to increase the level of (oilfield) activity," said Cindy Pollard, spokeswoman for the Bakersfield-based oil producer.

"However," she added, "currently in California, what's really needed to put people back to work is regulatory certainty and receiving permits on a cadence that allows oil production to ramp up." She said Aera will continue to monitor the oil price environment with an eye toward making production-level "adjustments as appropriate."

For consumers, the recent run-up in oil prices, together with California's annual transition to summer-blend gasoline, has pushed Bakersfield's average gasoline price to its highest since July 2019, according to the AAA.

The organization pegged Bakersfield's average price for a gallon of unleaded at $3.79 Tuesday, up 4 cents from a week before. The city's average has climbed a net 8.5 percent in the past month, and almost 16 percent in the past year, the AAA stated.

Auto Club of Southern California spokesman Jeffrey Spring said the bottom line is that the economy is gradually reopening, putting more cars on local roadways and increasing demand for fuel.

"You're seeing more businesses open up again, so people are definitely getting out and doing stuff," he said.

He and others pointed to a sudden surge in pandemic lockdowns in Germany, France and Italy, as well as a surge in COVID-19 cases in India.

The California Energy Commission noted that production cuts by OPEC and non-affiliated oil-exporting countries also have influenced the steady rise in crude prices since late April. It said by email this week's price decline "is more like a temporary dip, rather than something more profound."

Lasting declines in the price of oil hurt Kern County government because many of the largest contributors of local property tax revenues are oil companies. However, temporary fluctuations are mostly irrelevant because the county bases the value of those properties, in large part, on oil prices just once per year, on Jan. 1.

County Assessor-Recorder Jon Lifquist said by email this year's taxable oil price was set at $47, down 21 percent from last year's price of $59.50. The year before it was $55.

"Price is one of many components in valuing oil and gas properties, and our estimate for the 2021 valuation is a substantial reduction, possibly around 35 percent for the coming tax year," he wrote.

The website Oilprice.com reported Tuesday that the standard U.S. price benchmark, West Texas Intermediate, dropped more than 6 percent Tuesday, finishing the day more than $7 per barrel below last week's level.

Chevron Corp. said by email its own decisions about whether to expand local oilfield activity take into account considerations that go well beyond the market's temporary ups and downs.

"Since the price of crude fluctuates continually, Chevron needs to look through the economic cycles that drive oil prices as we plan our operations in any price environment," the San Ramon-based oil major stated.

Editor's note: This story has been updated to accurately reflect a comment from Cindy Pollard, spokeswoman for Aera Energy