In early January, US Steel Corp. announced that it would need to lay off 756 workers at plants in Texas and Ohio. This is terrible news for those workers right after the holiday, but some predicted that this could eventually happen with some larger companies given the fall of oil prices. Of course, many might be wondering exactly what the steel giant has to do with the oil and gas field. Consider that the plants they shut down make steel tubes and pipes for oil and gas exploration and drilling, and it’s easier to understand the cause.
Since the oil prices are lower than they have been in more than five years – the prices are around $50 a barrel right now – many gas and oil companies are not engaging in new drilling operations. Since those companies have been cutting back on their exploration, it simply means that the companies that supply them items such as pipes have no demand to meet. The only way those companies can stay in business is by cutting back, as unfortunate as it might seem.
US Steel was not one of the companies that foresaw this happening. They had actually hired more people in December, believing that things would turn around with the oil prices and that they would be able to continue with their output. The Ohio plant was making more than 700,000 tons of pipes each year. The Texas plant was making more than 100,000 tons.
Will Other Companies Follow Suit?
What about the other companies making items for the gas and oil industry? How will they fare? It all depends on what they are offering and for what prices. By offering quality material at good prices, there’s a chance that many manufacturers can still stay in business, but lean times may be coming. It’s time for manufacturers to look at what they can do to increase their profile and the desirability of the products they make, while keeping costs low enough that they will not have to reduce their workforce.
What Needs to Happen?
Although many in the country love the fact that the price of gas is lower and they are saving at the pump, something needs to happen that will curb the losses. OPEC will not reduce their output, and that’s one of the big problems. It’s unclear whether companies in the US will slow their output to reduce the supply and hopefully get the price of oil up to a level that’s agreeable to everyone.
Source: WSJ
About Oil Works Inc.
Oil Works, Inc. is a complete drilling rig equipment manufacturer and service provider based in the Permian Basin for over 20 years. OWI’s product and service offerings include Derricks, Substructures, Drawworks, Mud Systems, Walking Systems, Power Generation, Control Systems, Iron Roughneck Repair and Upgrades and complete Rig Solutions built to API and ISO standards. OWI is also proud to offer 24/7 Service and Support.
