7 Things You Must Know About the Price of Oil

2. When the price of oil goes down

Alternatively we see the impact when oil prices go down. With low oil prices in the $40-$50 a barrel range, we see an immediate drop in the price of gas at the pumps, our heating bill may go down and our general overall cost of living may also go down. In corporations the cost of doing business with variables like transportation go down dramatically and budgets for travel, equipment shipping, supplies and operational equipment all gain momentum as prices go down.

The price of oil being low has a direct negative impact on the oil companies exploring and producing oil because the commodity they are producing in the market today, is now worth half (if not more) of what it was a year ago, and profit margins not only shrink but in some cases break even or go below break even points and take a loss. This can often force a shut down of future projects, current projects and often leads to cost reductions and layoffs.

With lower oil prices, every oil company is affected differently as no two companies have the same variables and considerations. Each company has its own break even point and cost saving strategies, so there is no set point of when the price of oil is ok or not ok. Every project, company and scenario has a list of ever changing variables that the leadership must navigate through in order to make projects financially viable. Companies with long term plans tend to see lower oil prices as a natural dip in the market that they will eventually recover from. Other companies see the situation as devastating and have dramatic reactions and lay offs. There is no “one formula” for how it goes.

Currently in the Canadian Oil Sands the impact of low oil prices has resulted in many future projects being put on hold and thousands of layoffs are now in the mix. It’s estimated that, with the current $41 per barrel price of oil, that the Oil Sands layoffs in Western Canada may be close to 20,000 people at this time (August 2015).

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