The oil industry suffered its worst one-day price drop in almost three decades Monday, raising prospects of a hit to local employment as a disagreement between Russia and Saudi Arabia over petroleum production levels compounded economic worries originating with the coronavirus.
Brent Crude, the international benchmark many local oil sales are pegged to, fell about 30 percent before recovering ground and ending the day off 24 percent at $34.36 per barrel, according to Oilprice.com.
Stocks of local oil producers also suffered, with shares of Santa Clarita-based California Resources Corp. closing down 28 percent at $4 and Bakersfield-based Berry Corp. sliding 24 percent to settle at $4.01.
The price crash boded well for motorists seeking cheap gasoline. But it also stoked concerns about local oil production, which as Kern's primary economic pillar employs close to 24,000 people, according to one recent estimate.
Depending on how long the price downturn lasts, plummeting oil prices could eventually bring about layoffs in Kern oil fields.
The last big price drop, in mid-2014, led to more than 3,000 direct job losses in the county. But the vast majority of those cuts took place more than a year after prices began their slide.
There was no official word about what the lower prices would mean to local employment. Indeed, a number of local oil companies declined to make a public statement and several individuals in the business locally did not respond to requests for comment.
Chevron Corp., whose stock closed down 15 percent at $80.67, said by email the price drop is clearly felt across the U.S. energy industry, "including here in Kern County where the industry is a major driver of our community's prosperity."
The company, noting it has experienced similar downturns, asserted it is well-positioned for a low-price environment. But it also said it is "difficult to predict" how the price disruption will play out in the weeks and months ahead.
"Chevron's business in Kern County is part of a global, integrated energy company that has the strongest balance sheet and lowest break-even price in the industry," he stated. "This affords Chevron and its shareholders resilience through the cycle."
There are other bright sides, said Nyakundi Michieka, an assistant professor of economics at Cal State Bakersfield.
The local transportation and service sectors will benefit from lower fuel prices and consumers might choose to spend their gasoline-related savings at restaurants or shopping centers, he said. He added, however, that coronavirus fears could dampen economic activity overall.
There's no question local oil companies will be unhappy with the price decline, he said. Just how badly they hurt will depend on how much it costs individual companies to produce a barrel of oil, he said.
Two local oil production companies referred questions to the California Independent Petroleum Association trade group, which declined to comment.
The president and CEO of the American Petroleum Institute trade group, Mike Sommers, issued a statement reminding U.S. consumers and businesses that "the market is well-supplied and product is available."
He noted that the oil industry's investments are based on market fundamentals and that, over the long term, energy needs are expected to grow worldwide. But he acknowledged things don't look good in the near term.
"There is no doubt that we are in challenging times," Sommers stated. "But we have weathered complicated periods as a nation and as an industry."
Global demand for oil was already expected to weaken because of worries about the coronavirus. But Monday's steep price declines stemmed from a split that appeared over the weekend between major oil-producing countries Russia and Saudi Arabia.
Russia, under pressure from the Saudis to help support higher prices, balked at the idea of cutting production. in response, Saudi Arabia signaled it would increase production, setting off what observers are calling a price war likely to bring down barrel prices everywhere.
The Saudis' plan is probably to gain market share by making U.S. shale oil uneconomical, said Bill Higgs, co-founder and former CEO of Mustang Engineering, a Houston-based firm that works with oil companies.
Higgs added that the oil industry is "light on its feet" and can move quickly to match lower demand and pricing. But he predicted pain ahead.
"The impact will be felt first by oil field workers, then equipment suppliers, then the independent oil companies and their boardrooms," Higgs said by email. "The next six weeks will be very painful as the industry adjusts to the new reality."
Motorists might not see a noticeable decline in gasoline prices for up to a week, a spokesman for the Auto Club of Southern California said Monday.
"We've seen clearly the price of oil has fallen off the table but we haven't had any impact on retail prices yet," spokesman Jeff Spring said.