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Global forces drive local oil and gas activity

TRAVERSE CITY — Crude oil prices are likely to remain relatively low in the near future.

Unless the Saudis decide to take matters into their own hands.

Dr. Mary Cline, a Washington, D.C.-based consultant who recently spoke in Traverse City as part of the International Affairs Forum, thinks the price of crude could go even lower this summer.

“I don’t see the drivers for a price increase like we’ve seen before,” she said.

Crude production across the globe remains high, she said. Demand likely will remain relatively stable both in China and in North America. Put the two together and the logical result is lower prices. Prices for natural gas also are substantially lower this month than they were a year ago.

That’s discouraging news for workers in the northern Michigan oil patch, that swath of gas-and-oil-bearing strata that underlays a big chunk of the northern Lower Peninsula.

“We’re slow. Not very busy,” said Don Ball, owner of Liberty Roustabout Service in Kalkaska. “It usually isn’t too bad, but this winter has been slow.”

Ball hopes activity will pick up as temperatures climb.

Drillers must be able to count on profit before they can gamble on putting in new wells. Low prices for oil and gas make it more difficult to justify the cost of exploratory work.

Related: Global shares advance at end of down week, oil prices retreat

Despite the uncertainty, it appears that local employment in the oil and gas industry still is rising. The shale formations beneath Michigan contain both natural gas and crude oil. The practice of fracking oozed across the peninsula during the last few years. The new technique allowed companies to extract previously unreachable reserves. But activity may be leveling off.

“Some of the budgets that companies had planned have been pushed off,” said Don Marsh, of Marsh Industrial in Kalkaska. “Usually when that happens, it’s off for the entire year.”

Marsh Industrial supplies tank trucks, pressure vessel and other industrial equipment to oil and gas companies working in northern Michigan. Marsh said his company’s labor force has been steady the last few months. He has noticed an uptick in job applicants.

Lisa Schut, of Networks Northwest in Traverse City, said numbers for 2014 employment in the local oil industry are not yet available. But economic modeling software, working from data between 2004 and 2014, suggests that there were 594 jobs in Kalkaska County in 2014 in the mining, quarrying and oil and gas extractions industries. In 2004, there were 240 jobs in that broad classification in the county. Average annual earnings for a worker in those industries grew from $66,733 in 2004 to an estimated $85,297 in 2014. The modeling software suggests that 92 percent of the workers in the industries are male.

Shale natural gas amounted to 27 percent of overall U.S. natural gas production in 2010, according to a study performed by America’s Natural Gas Alliance, which represents a group of independent natural gas exploration and production companies.

Fracking has helped the flow of crude from North American oilfields increase. Iraq and other nations also have ramped up production. Crude oil prices plummeted this winter as production grew and global demand stagnated.

“Most people could see that coming,” Cline said.

The tipping point came in November. The Saudis, who for years had been controlling Saudi Arabia’s output to steady the market price of crude, decided to stop doing so.

“The Saudis have given up their mission of stabilizing the market,” said Cline.

Production climbed. Demand remained steady. The law of supply and demand drove crude oil prices lower.

Cline said economists now are divided in opinion about what’s next. Some believe prices will stabilize naturally and then rise. Others forecast even lower crude prices in the coming months. The Saudis, she said, seem to be in the former camp.

“The Saudis expect it (the price of crude) to be back up in the hundreds in a year or two,” she said.

 

This article was written by Dan Nielsen from The Record-Eagle, Traverse City, Mich. and was legally licensed through the NewsCred publisher network.

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