I came to Texas A&M to earn a degree in petroleum engineering because the oil industry in North America had been absolutely booming when I was in high school, but a drop in oil prices has created a more dismal future for up-and-coming petroleum engineers.
In June of 2014, the cost of one barrel of oil was about $115. Fast forward a year and a half, and oil prices have plummeted to under $27 per barrel in the world market — the lowest prices since September 2003. So what happened?
In late 2014, Saudi Arabia and the Organization of Petroleum Exporting Countries, OPEC, decided that American companies were starting to claim too much of the market share with newfound oil fields in the United States. Since OPEC essentially operates as an oil cartel trying to control global oil prices and market share, this new American competition meant they had less and less control on oil prices. Their plan to regain their firm grip on the global price? Flood the market with oil, trying their best to drop oil prices and drive American companies out of business.
They can do this because these governments are sitting on millions of accumulated cash reserves from years of exporting oil. So while they aren’t making as much profit, they can survive longer than the newly flourishing American companies without the same capital base. The bottom line is OPEC’s tactic is working, and American oil companies are feeling the hurt of low oil prices. Thousands of workers have been laid off and some companies are on the brink of going under.
As a junior petroleum engineer, this price drop is rather alarming. How am I going to find an internship — let alone a job — once I graduate? And it’s not just me, it’s all petroleum engineers asking this same question. With American companies laying workers off, they aren’t going to hire some chump like myself fresh out of college when they can barely pay the experienced workforce they have.
So what am I going to do? Switch majors? No. I’m going to do nothing at all except stay in school and finish my degree.
See, while the majority of Americans are currently enjoying a cheap tank of gas resulting from a domino effect caused by the low oil prices (even I enjoy filling up for pennies on the dime when I ignore how it affects my future employment), these low prices will only last for so long. Actually, I’m rooting for oil prices to go even lower.
Call me crazy, but the lower prices go, the more oil companies go under, leading to less oil supplied to the world market. Supply and demand would then dictate a major oil shortage, causing a sky rocket in oil prices. Since oil prices are positively correlated with petroleum engineers’ future employment opportunities, that’s really good news for myself and other petroleum engineers.
On top of that, even if American companies go under, higher oil prices with less competition will give incentive to American entrepreneurs to start a new fleet of home-grown American oil companies. So while Saudi Arabia and OPEC have found a solution to restore oil prices to a level they want while reclaiming some market share, their solution is only temporary.
And even if the recovery of oil prices doesn’t happen exactly like I’ve summarized, they will recover. Period. It’s a supply and demand market, and prices will recover over time. Oil is a global commodity and a lot can happen in the world to affect oil prices — I mean after all, the world is a volatile place and oil prices generally reflect that. Any global occurrence whether it be American oil companies going under, war or Saudi Arabia and OPEC not being to handle the financial burden of low oil prices are likely to cause to oil prices to rebound.
The bottom line is this — enjoy low gas prices at the pump while you can. Oil prices will make a recovery and it may be sooner than the average consumer would like. And if you are a petroleum engineer — this is the employment environment you signed up for. There will be tough times, but there will also be prosperous times. If you are in the business for your career you will go through both. So while the waters may be rough right now, us petroleum engineers just need to weather the storm because smooth sailing is in the near future.
Michael Wascom is a petroleum engineering junior and guest
columnist for The Battalion.