Oil price blowback: Producers, others brace for cutbacks
Further proof that there's no such thing as a free lunch, at least in the globalized oil and gas market -- as big and small oil producers, as well as some related industries, feel the financial pinch that comes from lower crude oil prices.
The ongoing North American shale oil boom, along with slower economic growth internationally and OPEC's decision to continue crude oil production at current levels, are just some of the reasons oil and gas prices continue on their downward spiral.
And while America's motorists continue to enjoy some of the lowest gas prices in years, the tumbling crude oil prices, as expected, are creating hard times for those employed in oil production.
Earlier this week Concho Resources (CXO), a Texas-based independent oil and natural gas company, announced it was cutting back on its 2015 capital program, "as a result of the sharp decline in commodity prices." But at the same time, the company said it expects its oil production for this year to grow by 16-to-20 percent.
Meanwhile FuelFix.com says the firm Baker Hughes -- which supplies services and products to the oil and natural gas industry -- has reported declines in the U.S. oil rig count for the past four weeks, including 26 land-based U.S. rigs that halted work last week.
And Praveen Narra, an analyst with Raymond James, tells the website that his company has revised the number of drilling rigs expected to halt operations this year from 550 to 850.
In Colorado, which has experienced higher oil production due to growth in hydraulic fracturing, or fracking, industry officials are sounding alarms.
"This is a $30 billion industry in Colorado that employs 100,000 people both directly and indirectly," Stan Dempsey, president of the Colorado Petroleum Association, told CBS station KCNC last month. "If there's a slowdown in drilling that will certainly have an impact on Colorado's economy."
And across the oil industry, managers and workers are bracing for what some see as inevitable job cuts.
"The industry is going through Darwinian adjustment," Bill Herbert, an analyst at the investment banking firm Simmons & Co., told the Houston Chronicle.
"The pressures of the marketplace will dictate that these companies adjust their businesses accordingly," he noted. "The easiest way to do that, frankly, is to reduce your head count."
And then there's the indirect fallout. On Monday U.S. Steel (X) announced that it would be laying off around 750 workers at its plants in Ohio and Texas that make the tubular steel commonly used in oil and gas drilling operations.
The company, in a letter posted on the website of United Steelworkers Local 1104 in Lorain, Ohio, said the layoffs were due to "a decline in tubular market conditions, which is impacting demand for...products."
On the same site, USW Local 1104 president Tom McDermott noted U.S. Steel has "suddenly lost a great deal of business because of the recent downturn in the oil industry."
"What appeared just a few short weeks ago as being a productive year," he added, "has most abruptly turned sour."