[BigChiefFan]

But I Don’t Want to Cut Production!

Saudi Oil Minister, Ali al-Naimi, said this past December that OPEC will not cut production, even if oil reaches $20 per barrel. It seems clear that OPEC, or at least most OPEC nations, are prepared to ride it out. However, at least one OPEC member, Venezuela, a country which derives 95% of its export revenue from oil, would prefer a production reduction sooner than later. However, that’s apparently not going to happen. What would result if oil prices remain low for an extended period? Companies which were profitable at $100, $80, $60, etc., would no longer be able to turn a profit. This would lead to massive layoffs in the oil industry, up to 250,000 workers, half of which would be in Texas. In addition, many regional banks in the affected areas would suffer due to a rise in loan defaults. Low oil prices would also have a negative impact on other industries such as hotels, housing, restaurants, etc. In short, there would be a ripple effect which would outweigh the benefits realized from lower gasoline prices. What will the oil industry look like after the fact?