Oil Has Yet to Recover as Energy Companies Struggle at Current Prices
Eagle Energy Inc (TSE:EGL) is looking to shed 16% in costs this year, starting with a significant cut to the CEO’s pay, but may eventually end up with job losses.
The oil industry has struggled since the boom times, when crude surpassed $100.00 per barrel. Now, as oil has fallen as low as $45.00 a barrel, oil companies that were built with higher prices per barrel in mind are unable to cope with the massive cuts in value, especially as production spending rises.
Although energy companies have generally been able to recover since last year, when many were forced to make large reductions or close down, there is still a significant disparity between the price at which these companies will be profitable and crude oil’s current value.
Even a relatively slight drop can wreak havoc on energy companies. Consider that Eagle had initially planned to be profitable at $55.00 per barrel. But with prices as they are, the company will be unable to sustain operations without implementing cuts.
The energy sector as a whole has not had a fantastic 2017, as solar companies have begun to collapse all across the U.S. The energy sector has also had a change of fortune since President Donald Trump assumed power, as he has emphasized oil, coal, and gas over alternative energy sources like solar and wind.
Much of Trump’s campaign was in fact predicated on his ability to bring back jobs to coal miners and other Rust Belt residents, meaning that the energy industry may be in for an even more radical shakeup, depending on how far Trump goes to save the coal and oil industries, which some experts believe are irredeemable.
Trump recently withdrew the U.S. from the Paris Climate Accord, again indicating his preference for oil, coal, and gas over renewables.
The energy sector as a whole is going through a time of transition, as renewables are becoming more profitable but still largely reliant on government subsidies, while coal is considered one of the more pollution-heavy fuel sources and many coal mining companies have long-since closed their businesses.
How the sector develops will have a strong effect on the future of the U.S. economy, and could also have a large impact on foreign policy relations, as Saudi Arabia and its neighbors have been purposely deflating oil prices in order to price out competition from higher-cost oil gathering techniques like fracking and shale oil.