Oil and Manufacturing

Oil prices have dropped significantly over the past few months. June of last year saw crude oil prices of $107 per barrel. Now, prices are nearing $80 a barrel. That’s a pretty big difference for just half a year’s time. On the surface this seems like nothing but great news. Cheap gasoline means more spending money right? Consumers may be enjoying cheaper gas at the pump, but what do low oil costs mean for manufacturing?

There are a couple of ways to look at it. Cheaper oil prices mean lower energy costs, and lower transportation costs, so that should be good news for manufacturing right? On the other hand, falling oil prices can have an indirect, and potentially negative, affect on the manufacturing industry.

In an NPR interview, Michael Levi, who studies energy at the Council on Foreign Relations, said that manufacturing, while not affected directly, is impacted by oil prices. Levi says that if oil prices drop for an extended period of time, oil companies tend to dial back on drilling. The manufacturing industry gets a lot of business from drilling, and less drilling means less manufacturing.

He also says that automobile manufacturing can be affected by lower oil prices; however it’s not in the way that you would think. You might assume that lower oil prices would mean that people have more money, and they might even be encouraged to buy a new vehicle while prices are low. Levi says that the opposite is true. When prices are low, people become wary and delay plans to buy vehicles until there is more regularity in the price of oil.

Many Texas businesses are reporting that their manufacturing sector is hurting from low oil prices. Over 100 different Texas manufacturers are reporting some type of loss whether it’s in employment, orders, or production. While the state is no longer solely dependent on oil, the manufacturing sector is still closely connected to the oil industry.

Manufacturers who aren’t dependent on oil are seeing different results. Many manufacturers in the UK are benefiting from low oil prices and are seeing boosts in their sector. The nation is benefiting from lower production and energy costs, and taking advantage of the current prices.