MIDLAND, Texas — Over-supply and low demand have crippled the oil industry over the past few weeks, but a new deal reached by OPEC is expected to help alleviate the oil glut.
In the last three months, oil has dropped from $57 per barrel to near $23 today. Experts say the problem is twofold.
"Demand has fallen with the virus and the shutdown in the world, and we were threatened with big increases in production at a time that demand was falling," says Dr. Ray Perryman, President and CEO of The Perryman Group.
The world's oil industry went from producing and consuming 100 million barrels a day at the beginning of the day, to just 80 million today because of worldwide shutdowns caused by the coronavirus.
The other part of the problem was a massive oil glut after Saudi Arabia and Russia ramped up production.
"At the moment it's something of a crisis because we're out of storage space, and they're still going to be producing more every day and there's no place to put it," says Perryman.
But Sunday's OPEC deal takes 9.7 million barrels off the market, which Perryman calls a road to a solution.
But for local oil producers like Fasken Oil and Ranch, it's a game of wait and see.
"We've done the social distancing and we've shut the office down, and we're trying to get people to work from home," says Tommy Taylor, Fasken's Director of Oil and Gas Operations.
Fasken had three rigs operational at the beginning of the year, but at the end of the month, all of their rigs will be frozen.
"If we could get back to 40 dollars [per barrel], we'd consider doing some drilling projects," Taylor says.
Across the Permian Basin, we've seen similar cuts. But Perryman believes that thanks to advances and technology and a strong infrastructure, the Basin isn't ready to fold. It's on standby.
"The [federal government] are doing a lot to help us with that. The stimulus will help and this OPEC deal will help. I think we can come back fairly quickly"