Oil discoveries in 2015 fell to their lowest level in almost 65 years, reported Morgan Stanley analysts. The oil and gas industry discovered 2.8 billion barrels of oil outside the United States last year, which is the equivalent of one month of global consumption, Morgan Stanley said in its report. Global discoveries rose to 12.1 billion, but that figure is still the lowest since 1952, when the oil industry was one-seventh of its current size.
“The demand for oil right now is weak,” said Randy Chen, president of Impex International Inc., a New Jersey-based firm that provides direct import services and U.S.-based warehousing of imports for more than 100 promotional products industry suppliers. “Oil companies are not spending budgets to explore new resources.”
As oil prices dropped over the past couple years, energy powerhouses such as Exxon Mobil and Royal Dutch Shell have slashed exploration budgets. Oil exploration spending plummeted from $168 billion in 2013 to $95 billion in 2015, according to Morgan Stanley.
The impact of the oil discovery decline has even been felt in the promotional products industry, as companies calling on oil industry clients are contending with falling sales. Devin Jones, owner of Proforma Gateway Solutions (asi/491471), said her sales were down 70% last year because of oil and gas customers.
“A lot of them are small to medium-size service companies that just had to shut their doors,” Jones said. “My biggest client of the past four years wiped out its entire marketing department in the U.S.”
Tingley Rubber Corp. (asi/91222) manufactures protective footwear and clothing such as water-proof and liquid-proof chemical-protective products. Jim Towey, vice president of marketing, said business has been down anywhere from 10% to 25% for the company’s distributors. “In April of 2015, things really softened up in that market,” Towey said. “You didn’t even see the drop off coming.”
Both Jones and Towey said their respective businesses still grew despite the decline: Proforma Gateway Solutions acquired a New York business and Tingley Rubber Corp. relied upon other strong markets.
As for shipping costs, Chen said there have been less surcharges imposed over the last year. “It’s a good thing for importers,” Chen added.
As the price of oil has begun to rebound through the first part of 2016, though, Jones, Towey and Chen all expect business from this sector to begin to increase, as well. In fact, experts point to a robust market for companies selling to oil outlets through the first quarter of 2017.