Slump in Oil and Gas Industry Taking Toll on Industry Economy

Published Date : Aug 03, 2015

As the shippers, drivers, and airlines maintain to enjoy the lower fuel prices, the oil industry is broadly responding to extremely lower profits with high cuts in employment and spending. These cuts are affecting the economic growth.   

Low gas and oil prices are beneficial for the overall economy. They help to reduce the costs for business and consumers. As the U.S. economic growth was extremely higher in the second quarter, the economists express that was partially boosted by the consumers spending some of their basic savings on gasoline at restaurants and stores. 

However, with the oil prices low at around 50 percent from last year, some of the major oil companies are being callous on their price factor. This offsets some good news in the overall oil and gas industry across the globe. 

For instance, the Exxon Mobil cut spending by $1.54 billion in the second quarter, said the company on Friday. Chevron also announced it is cutting off 1,500 workers from the company. About six months ago, the booming U.S. oil and gas production in the country was helping the overall country’s economy to grow and expand during the time of economic sluggishness. 

J.P Morgan Asset Management’s chief global strategist, David Kelly commented that this week around a $29 billion turn down in mining activity and oil exploration in the U.S. cut the economic growth by around 0.7 percent in the second quarter. This figure was a sizeable chunk for an economy that boosted by 2.3 percent. 

The lower oil profits are also felt by the investors. They have an outsized effect on the stock markets due to the companies being enormous. 

The RBC Capital Markets analysts evaluated that when oil prices decline by 10 percent, earnings for the overall S&P 500 drop by one percent.    

The industry layoffs are accelerating. Royal Dutch Shell announced on Thursday that profits declined 25 percent in the second quarter. The company would cut its global workforce by 6,500, while Chevron’s quarterly profit declined 90 percent and CEO said the company has decided to reduce its workforce. This will reflect the lower activity levels in the future. 

The layoffs of three major oil and gas service companies are almost 60,000, after Baker Hughes and Halliburton revealed their layoffs too in the quarterly filings in the last week. 

BP told the investors that they have been cutting workers most of which will be seen by the end of the year.