Plummeting Oil Prices Impact American Economy: A Significant Decline
The oil and gas industry, once hailed as a key driver of America's energy independence and economic growth, is currently facing an unprecedented crisis. The industry, which became the world's largest producer of fossil fuels around 2005 due to advancements in shale-oil fracking technology, has been hit hard by a perfect storm of factors.
One of the major contributors to the industry's woes is the oversupply of junk bonds, with energy companies being the single largest borrowers in 10 out of the last 11 years, according to an analysis from JP Morgan Chase. This heavy reliance on borrowed money, often financed by Wall Street using complex financial instruments like derivatives, CDOs, and junk bonds, has left many companies vulnerable to market fluctuations.
The price of oil plunged by almost a third on March 9, 2020, from nearly $60 to under $20 per barrel. This dramatic drop, coupled with the economic blow caused by the coronavirus pandemic, has sent shockwaves through the industry. The U.S. became the world's largest producer of fossil fuels on the back of an industry that is dependent on continuous investment to fund drilling projects. However, many U.S. producers, particularly those extracting from shale fields, are losing money and trying to cut costs.
The downturn in the industry is expected to have far-reaching consequences. Analysts predict waves of bankruptcies, thousands of job losses, and steep drops in tax revenues for oil-dependent states. Service companies like General Electric's Baker Hughes or Schlumberger will be particularly affected by the downturn. Major players, such as Halliburton, a top fracking service provider, have already taken drastic measures to cope with the economic blow. Halliburton, for instance, has furloughed over 3,500 employees and cut executive salaries.
The falling oil prices have also taken a toll on individual investors and major institutional pension funds. Unemployment levels are already at record highs since the 1930s, and hunger is spreading. Oil-dependent states and communities will soon see tax revenues dry up due to job losses in the industry.
The industry's collective debt, which stood at over $200 billion before the coronavirus pandemic hit, is further exacerbating the crisis. The recent historic agreement to slash oil supply, as predicted by the International Energy Agency, is expected to deal an "unprecedented" economic blow to the United States.
Despite these challenges, it's important to note that the search results do not provide information about the largest American oil and gas production companies directly employed by affected states and municipalities or their specific impact on the current economic crisis.
Trump, who boasted about achieving "energy dominance" for the U.S., will likely face the brunt of the backlash from this crisis. Fracking has never been financially viable, with more than 50 percent decline in oil production in the second year. Output is expected to shrink by more than two million barrels per day. On April 20, West Texas crude was being traded at an unprecedented -$37.50 per barrel, a price so low it's virtually impossible for producers to make a profit.
Crude prices in Texas have fallen below zero, crashing through a floor few traders ever assumed was penetrable. The industry, which was once a beacon of American economic strength, is now grappling with an existential crisis. The road to recovery will be long and arduous, but the resilience of the American spirit remains undeterred.
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