Crude Oil’s Deep Dive Hard On Industry And Economy
$OIL, $USO, $UGA, $CVX, $XOM, $RDS-A
As consumers, airlines and shippers enjoy lower motor fuel prices, the Crude Oil industry is responding to much lower profits with sharp cuts in spending and employment that is hobbling US economic growth.
Low Crude Oil and Gasoline prices are good for the overall economy because they reduce costs for consumers and business. US economic growth was higher in Q-2, and economists say that was partly driven by consumers spending some of their savings on Gasoline at retail stores and in restaurants.
But with Crude Oil prices down over 50% from June 2014, major Oil companies are cutting back, offsetting some of this good news.
For instance, Exxon Mobil (NYSE:XOM) said Friday it cut spending by $1.54-B in Q-2, while Chevron (NYSE:CVX) announced it is laying off 1,500 workers. Until about 6 months ago, booming US Oil & Gas production was helping the country’s economy grow during a time of economic sluggishness.
This past week a $29-B decline in Crude Oil exploration and mining activity in the US cut economic growth by 0.7% in Q-2, a sizable amount for an economy that grew 2.3%.
Participants are feeling the pain.
Lower Crude Oil profits have an outsized effect on stock markets because the companies are huge. When Crude Oil prices drop by 10%, earnings for the overall S&P 500 fall by 1%.
Layoffs at 3 of the big Crude Oil and Nat Gas service companies are near 60,000 after 2 of them, Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI), revealed further layoffs in Quarterly filings last week.
Exxon Mobil’s profit fell by 50%, to its lowest since the recession of Y 2009, the company said Friday. Its operations in the US, the center of the global Oil 7 Gas boom posted its 2nd straight Quarterly loss.
Shares of Exxon and Chevron, both components of the 20-member DJIA fell 4% Friday after they announced results.
Iranian Crude Oil is poised to return the world market after years of sanctions will add to the world wide glut.
Low Crude Oil prices, along with the pain for the Oil industry and pleasure for consumers, are likely to continue for some time, analysts say. The world is awash in Crude Oil in the ground, in storage tanks and tankers. Plus, the global Crude Oil industry has the capacity to produce more if and when demand picks up.
Analysts predict further declines in Crude Oil prices. Crude Oil will have to fall into the low 40’s and lower, and stay there for some time before US production growth slows and the supply glut eases.
This is not not good news for producers, but it is good news for consumers.
Have a terrific weekend.
HeffX-LTN
Paul Ebeling
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