Plunging oil prices 'could go even lower for even longer'

Nathan Bomey | USA TODAY

Show Caption Hide Caption Midday report: S&P 500 retreats from records The S&P 500 fell from records on Tuesday as a steep selloff in crude oil prices sent the energy sector lower. Video provided by TheStreet

Oil continued its month-long tailspin Tuesday, as the energy industry braced for the possibility that prices aren't stabilizing anytime soon.

Falling prices could temporarily constrict the rapid growth of U.S. oil production, but energy industry experts don't expect a significant pullback. American oil producers cut costs during the last downturn spanning from late 2014 to early 2016, which keeps them profitable even at lower oil prices that might have previously shut down wells.

The possibility of what the energy industry calls a "lower-for-longer" scenario is gaining ground. It could accelerate the auto industry's transition from fuel-efficient cars to thirstier sport-utility vehicles and give Americans unexpected savings in their summer travel budgets, while also raising the prospect of energy worker layoffs if prices dip further.

The price of West Texas Intermediate, the U.S. benchmark crude, dipped below $43 per barrel in afternoon trading Tuesday, a level not seen since last August. It settled at $43.23, down 97 cents on the day.

Less than a month ago, oil was trading above $50 and experts were projecting prices of $60 to $70 later this year. That now looks unlikely.

"We had no idea it would be this low for this long," said Patrick DeHaan, a petroleum analyst at GasBuddy.com. "It could go even lower for even longer."

That's because American producers are pumping oil at a furious pace, the Organization of the Petroleum Exporting Countries deal to extend production cuts is having limited effect and other foreign sources, such as Libya, are picking up the pace.

What's more, U.S. energy exports are picking up, giving producers incentives to continue pumping, and President Trump has signaled plans to loosen federal restrictions on drilling.

"All of these things I have a tendency to put some downward pressure on prices, which is obviously what we’re seeing," said John Graves, an energy consultant with Houston-based Graves & Co. "You’re sort of talking to Captain Obvious here."

For consumers, oil's slide spells relief. The nationwide average for a gallon of gasoline was $2.28 per gallon on Tuesday, down 4.4 cents from a month earlier and down 5.9 cents from a year ago. Some experts had previously expected that gas could be nearly $3 by now, but those projections fizzled out.

Gas prices in 47 of 50 states have fallen for two straight weeks, DeHaan said.

Although lower gas prices are good for consumers, they can undermine the energy business. During the last downturn, in which oil briefly fell below $30 in February 2016, energy companies slashed more than 440,000 jobs globally, according to Graves & Co.'s analysis.

This time around, Graves doesn't expect significant job cuts because energy companies tightened their belts and pursued consolidation to bolster efficiency.

In addition, shale energy companies, particularly in the booming Permian Basin in Texas, have made technological improvements to lower their cost of breaking even.

Today, some oil shale companies can turn a profit at $40 per barrel, or even lower, Graves said. That represents a significant threat to OPEC, whose recent deal to slash production through March has failed to spark an uptick in prices.

"I think at this price you’re not going to see additional layoffs," Graves said. "Now if we were back down in the $35 range or back down to let’s say $32, you might see a slowing down again of drilling activity."

There are indications already that the growth is cooling off. The number of active U.S. oil rigs rose by only six in the week ended June 16, according to oilfield services firm Baker Hughes. That's below the average pace of about 10 new rigs per week for the last 52 weeks.

But in the long run, few expect American producers to turn off the spigot.

In fact, the Energy Information Administration projected earlier this month that U.S. oil production would hit an all-time record of 10 million barrels per day in 2018, topping the previous mark of 9.6 million set in 1970.

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.