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Will OPEC Production Cuts Boost Kern County's Oil Economy?

OPEC website

Last week, the 13-country oil cartel known as the Organization of Petroleum Exporting Counties, or OPEC, announced that it would massively scale back its oil production. OPEC is responsible for producing about one-third of the world’s oil. The move is an attempt to increase the price of a barrel of oil which has been hovering around $40 a barrel for the last couple years. That’s down from about $100 in 2014 and $140 before the Great Recession.

The move appears to be working as the price of oil is now on the rise.

For most people, the price of a barrel of oil is felt in the pocketbook in the cost of a gallon of gasoline. But for Kern County, the highest oil producing county in the United States, the price of a barrel of oil has a huge impact on employment, the economy and county government revenue.

Nyakundi Michieka, who is an assistant professor of energy economics at California State University Bakersfield, says there are a number of potential consequences of more expensive oil.

“If you look at Kern County’s oil economy, we have a lot of folks working in oil extraction and drilling. And over the past two years we have seen a reduction in employment in that sector. We usually do not respond very, very fast to changes in oil prices. If you were to look at the oil prices changes that took place in 1996 and those that took place in 2008, you will find that between 1996 when oil prices when down and when they went actually went up it took close to ten years for employment in the oil and gas extraction industry to go back to the levels it were. But that change took less time between 2008 and 2010 where it only took two years for us to recover.”

How quickly will companies act to start hiring?

“If you were to look at Kern County, most of the folks who work in oil and gas work in extraction and drilling and some of the exploratory activities. So these are investments which usually take a while. And they depend on the stability of the oil prices. So if I had my own company, and I see prices change the way they are changing right now, I think it would take a while before I would start making that decision to say ‘hey, let’s go back out there and start exploring again,”

Why does it seem like hiring is slower when prices rise, but layoffs come quickly when they fall?

Credit OPEC website
OPEC website
OPEC officials at the most recent gathering
“It largely depends. We see more of that happening when oil prices go up. Right now, we are only talking about employment in the oil and gas sector. But there are also other effects that take place in the economy. We have the manufacturing, construction, the service industry. Those are other industries which indirectly could be affected by oil prices. So the whole employment picture could be change differently,”

Will higher prices help boost tax revenue in Kern County?

“In June of 2014, we were selling at $105.79. So right now we are hovering around the 40’s and getting into the 50’s. So, we are still not back up to where we were two and half years ago,”

If companies have adjusted to lower prices, why not just save the profit?

“These companies have folks have folks who have been working with them for them for a while. I would say if I were working for a company, it wouldn’t be in the best interest to just pocket the profits. Because the folks that they have been working with, some of them have been laid off or had to find other places to work, but there would still be an interest to keep developing the oil fields that they have out there. And finding ways to keep people working,”

Jeffrey Hess is a reporter and Morning Edition news host for Valley Public Radio. Jeffrey was born and raised in a small town in rural southeast Ohio. After graduating from Otterbein University in Columbus, Ohio with a communications degree, Jeffrey embarked on a radio career. After brief stops at stations in Ohio and Texas, and not so brief stops in Florida and Mississippi, Jeffrey and his new wife Shivon are happy to be part Valley Public Radio.