As Oil &Gas people, we stand with families affected by this downturn. We believe the upturn is coming and we want to highlight the positive takeaways from low oil prices. By now we are all aware of the sinking price of oil that has now dropped to $30 per barrel, sometimes less. This is a significant drop from the high of $115 enjoyed in June of 2014 and even the $58 per barrel just over 10 months ago in March, 2015.
However, despite this downturn in the pursuit of profits, there are a few positives that can come out of the new low price. For instance, lower oil prices mean cheaper gas costs for business, which leads to smaller energy bills and cheaper transportation costs. The oil and gas still needs to get to consumers and the trucks, trains and ships pay the same low prices enjoyed by everyone.
The same goes for powering the drilling rigs, power plants and refineries used in the process to prepare crude oil for distribution. One of the big winners of the low oil prices is the refineries. They kept refining oil after the market was saturated and when the price fell they had a huge supply and smaller demand, therefore having to store the excess. This caused the storage prices to increase and the value of their companies, based on their assets, also increased. Refineries can also use the lower oil prices to take a bigger take of the pump price. Basically, the lower cost of oil is not all passed to the consumer at the pump; the refineries use lower crude prices to increase their percentage of prices at the pump.
According to a recently published article in the Los Angeles Times, the outcome of lower oil prices is being experienced much differently in the blue collar (downstream) and white collar (upstream) sectors. The article points out that although there have been many layoffs in the oil industry more of the white collar, or upstream jobs, have been eliminated than the blue collar, or downstream jobs. The “downstream” workers refer to the blue collar employees that run the refineries such as operators and technicians, as opposed the white collar “upstream” workers such as lawyers, accountants, consultants and engineers. In Houston in particular, and in other cities with refineries and corporate headquarters, there is increased job security for the front-line, downstream workers.
Right now the hope is that the money saved at the gas pump will eventually provide an economic stimulus for the North American public. People will spend that money that they save thereby stimulating the economy and eventually stabilizing prices. One of the largest benefactors is the airline industry who are passing down oil and gas savings to consumers, many of whom are in the oil and gas industry needing to fly many times per month between places within Texas and to Alberta.
The low prices should benefit Canadian-American trade relations in particular. The United States is Canada’s biggest trading partner in many industries, specifically the oil industry. The United States is the largest oil exporter to other countries like Japan, China and others. Because of the close relationship between Canada and the United States are still a net importer and can get their oil from Canada at a premium price and then export to others at a different price, thus benefitting from the low Canadian dollar. In the end Canada gets to export more oil to its biggest trading partner and the United States get to import it for a more economically friendly price.
The oil market has always been volatile and cyclical and the price of oil will go back up, just like it did in 2008. In the meantime, there are positives that we can take away from this low oil price situation. People are paying less at the gas pumps and therefore spending more, thus stimulating the economies of both Canada and the United States. The same goes for businesses and their transportation costs. The less they spend on transportation the more they can spend on infrastructure, research, development and employment. The refineries and their “downstream” employees are doing well, and will continue to do well as they can refine more crude oil at a cheaper price and profit from the high price of oil storage paid by the distributors. In short, there will be a time that oil prices rise but right now is not as bad as it seems.
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