MILWAUKEE — The pain at the pump is gone for now, but could we begin to feel it elsewhere?
Maybe.
From manufacturers who make parts and equipment for U.S. oil drillers to companies developing battery and biofuel technologies, the months-long slide in the price of oil has implications for companies across the U.S.
This could quickly become about more than cheap gasoline.
The concern is that crude prices could fall so low that demand for alternative energy sources would evaporate and the growth of the U.S. oil patch, which has helped lead the country back from one of its worst-ever economic downturns, might slow or even stop.
“This is clearly a mixed bag for the U.S. because a large percentage of U.S. job growth since the credit crisis has happened in the energy sector, and that growth could halt or reverse if oil prices stay low for long,” said Ethan Bellamy, managing director and chief oil industry analyst at Milwaukee-based Robert W. Baird & Co.
Jobs in the oil and gas extraction category have grown by an estimated 80 percent in the past 10 years, according to the U.S. Department of Labor.
That growth has reached such places as Richfield, Wis., where Strohwig Industries decided five years ago to jump into the business of manufacturing oil field parts and equipment.
“It has become a significant part of what we do,” said Mike Retzer, controller at Strohwig.
For Retzer, falling oil prices complicate financial forecasting and planning for the coming year.
“We haven’t seen a decrease in orders yet, but heck, we don’t know,” Retzer said. “The crystal ball is pretty cloudy due to these oil and (natural) gas prices.”
The price of a barrel of U.S. benchmark light sweet crude fell more than $2 a barrel to $57.81 on Dec.12. It was trading at $107.26 a barrel in late June.
How low does the price have to go before it begins to diminish the profitability — and production — of the U.S. oil patch?
“There’s really no magic number where things are going to fall off a cliff as far as production is concerned,” said Jim Ritterbusch, president of Ritterbusch & Associates, an oil advisory firm in Chicago. But, “we’re getting close.”
• PLANNING FOR VOLATILITY
Companies in the petroleum sector plan for volatility, said Lee Edwards, chief executive of Virent Inc. in Madison, Wis., and a former executive at BP in Houston.
“It’ll go up, it’ll go down, and we’re trying to build our business models so we are independent of that volatility,” he said.
• ECONOMIC BOOST
Despite any difficulties plummeting crude oil prices may pose for some companies, the ever-growing savings at the gasoline pump translate into a sizable boost for the U.S. economy.
The lower gasoline prices act like a tax cut.
“The average consumer is clearly winning here on lower prices and money in their pockets,” Baird’s Bellamy said.
• TOUGHER STANDARDS
While sales of electric vehicles and hybrids are likely to be pressured by low oil prices, development of alternative energy sources will continue amid tougher greenhouse gas and pollution standards being adopted around the world.
“So even if the fuel prices stay low, the emissions regulations continue to get more and more stringent,” said MaryAnn Wright, vice president of engineering and product development for the battery business of Johnson Controls in Glendale, Wis.
Johnson Controls is working on developing lithium next-generation car batteries to help automakers meet those standards, but its focus for now is helping the auto industry get better mileage out of cars with internal combustion engines.
So what’s a fair price for a barrel of oil — a price that doesn’t gouge consumers yet allows the U.S. oil patch to continue growing?
That’s impossible to figure, Bellamy said.
“What’s fair isn’t relevant when you are dealing with a cartel,” he said, referring to OPEC. “I wouldn’t be surprised if they cut their production deeply at the next meeting, taking oil back to $70, or if they allowed oil to go to $40 per barrel.
“Those are equally likely in my view.”
