Free Republic

and a prediction, low prices at the pump, and hard times in the American oil industry may be with us for years.

Fine said summertime gasoline prices should be somewhere under $2 a gallon. He said if gasoline prices drop to $1.65 a gallon, those would be the lowest gasoline prices in the United States since 1998.

Soft market demand and excess supplies of crude oil are to credit, or to blame, for the low gasoline prices, Fine said.

“Demand is not catching up,” he said. “You have a big imbalance. (OPEC) is not producing according to price. They’re not cutting back.”

Fine said at the start of his speech he had come to the landmen’s meeting “to present some realism.”

“I don’t carry good news, but I carry a guidance based on some realism,” he said.

Fine is hardly an inspirational speaker, nor is he an optimist. The Saudis, he says, have waged a price war on the American shale drilling revolution and its producers. And the Saudis are winning.

Fine, who has testified before Congress on energy issues, lays out a world of geopolitical intrigue and scheming that plays out in the oil and gas fields just outside the room in which he speaks. The Organization of Petroleum Exporting Countries (OPEC) has long been concerned about the shale revolution in the U.S., and its potential for eroding the cartel's global market share. And OPEC officials have kept a very close eye on what's going on in North Dakota's Bakken, in the Permian Basin in Texas and southern New Mexico and, more recently, in the San Juan Basin in northwestern New Mexico. The U.S. rig count, Fine says, is translated into Arabic shortly after it's published here.

Saudi oil ministers were well aware, then, that while the shale revolution has been a rousing success, pumping U.S. production up to levels that haven't been seen since the mid 1980s, it is also expensive to do — costing three to ten times the production price of a Saudi Arabian barrel of oil. Many U.S. companies have gone deeply into debt to finance their costly drilling operations, making them especially vulnerable to any decreases in oil prices.

Sign, San Juan Basin, New Mexico.

Jonathan Thompson

During the summer of 2014, oil prices began to ebb slightly as global supplies caught up with and then exceeded global demand. It was the window Saudi Arabia had been looking for, and rather than curtail production to stabilize prices, as many expected the nation to do, it continued to pump oil at a high rate, even going so far as to offer discounts to Asian nations. Prices plummeted from $100 per barrel to $80 to right around $50 today, a level that had seemed impossible in July. Already, the oil and gas industry here in the U.S. has taken serious casualties. The number of rigs operating — a barometer of the industry’s economic activity — has crashed. Oilfield service companies have laid off thousands of workers. Boomtowns are on the verge of going bust. Even apartment rental rates in North Dakota’s oil patch have started to wane.

“It’s similar to 1985 and 1986, when the same OPEC offensive took place,” says Fine. Back then, it took more than two years for prices to recover, and far longer for the industry and the communities that relied on it to get out of the hole. While price drops take just a few months to be manifested in rig counts and employment levels, the response to price increases is usually a lot slower. “Will oil rebound to $100? I’m here to say no.”

The number of drilling rigs operating in the state has dropped from 85 last spring to 60, department Secretary David Martin told participants at the annual San Juan Basin Energy Conference in Farmington on Tuesday. The rig count dropped in both the Permian Basin in southeastern New Mexico and the San Juan Basin in the Four Corners area as producers slashed planned production to compensate for plummeting oil prices, which fell from more than $100 per barrel last summer to less than $45 in early January.

With 50 employees working directly on each drilling rig, and another 50 to 70 people employed in support jobs, Martin said his estimate of 2,000 layoffs is conservative.

“So far we haven’t seen a decrease in oil production in New Mexico, but we expect it to begin leveling off, and that means lost revenue and jobs in the coming months,” Martin said.