Once one of the most profitable businesses has now decayed into a graveyard of retired oil rigs, with companies having to decommission more than two thirds of their rigs. This devastating fact is due to the constant fall in price of an internationally trading barrel of oil which is currently priced, as of the 22nd of July, at $42. Compared to June 2014, the price of a barrel of oil has plunged and fell more than 70%. Recent news suggested it could be years before it returns to its comfortable, stable state.

impact of drop in oil price on associated industries

Price drop in oil. The short term impact on the whole industry

Some factors affecting the oil drop cannot be helped, whether it is due to natural causes or human activity. Some recent examples have affected people and businesses worldwide, such as:
•    Canada recently having to pull out of their exploration projects after a forest fire destroyed the oil sands regions
•    Nigeria also suffered with rebel attacks which curtailed supplies
•    Cars are becoming more energy efficient and therefore a demand for oil is lagging
•    The supply and demand for oil is also very unstable making work increasingly difficult for oil companies

For major companies such as Chevron, Royal Dutch Shell and BP, an oil drought causes major financial problems. These three companies have all announced cuts to payrolls and Exxon has been stripped of its AAA credit rating after record low quarterly profits were reported. It doesn’t stop there either, states in the US including Alaska, North Dakota, Oklahoma, Louisiana and Texas are facing economical issues. Not just in the US but all over the world there is a decrease in employment with oil related work.

We need a reality check in order to weather the storm of low oil prices. Although a sign of hope has come from Norway, as new drilling sites are announced, as discussed in our most recent post.

The public see these issues as a benefit to their savings, with fuel prices plummeting and homes that use heating oil to warm their houses seeing some savings too. Despite the oil sector being negatively affected, the UK economy will benefit as industries such as agriculture, air transport and petroleum manufacturing heavily rely on oil as their main input and therefore while prices are lower their expenses will fall.

Oil prices have been dramatically declining since mid 2014 and have been rising and falling ever since. Whether they are high or low, the positives and negatives of such prices affects people and businesses differently. The current forecast is that they will stay low for now, but with new drilling in Norway, we could see a rise once again.

quick-desktop