Falling Oil Not All Fun & Games...

Thursday, January 15, 2015

With oil prices having dropped to under $50 a barrel for the first time since 2005, gas prices are dropping like a rock. Americans are driving more freely without having to worry about how the gas guzzling is chewing at their pockets. While consumers are ecstatic about the plummeting gas prices, this abrupt price drop is not great for everyone.

The machining industry in particular faces slowing business with the sudden change. It has resulted in an industry-wide slow down of demand and return. With this change in the economic landscape, a drop in the demand for drilling equipment is the pivotal point of concern. To drive up the demand for oil, drilling companies intentionally ebb supply available on the market. This means less day-to-day drilling operations and subsequently less demand for machine components.

Be it for new rigging or to replace worn parts on derricks, less machine use translates to less repair. This poses such an enormous issue for the machining industry as a direct result of how enormous the oil drilling industry is, especially in the Texas market. Employing 400,000 at its peak, the Texas oil industry leads the nation. Statewide there are typically over 1,000 drills under contract, which fell to currently under 800. This, of course, is fundamental to the falling demand for machinery.

Not only does this negatively impact oil workers and machinists, it could also potentially lead to national and even global inflation. The bottom line is dropping oil prices wind up costing oil companies money. To absorb this negative impact, they are forced to layoff drillers and slow production. This is with the intention of curbing supply and driving demand. Unfortunately, the machining industry also bears the brunt of the slowdown, alongside a slew of other industries.