Plunging oil prices and merger cause large Shell layoff
Oil prices have been dropping since early 2015 following a trend in supply and demand, there is a decrease in exploration investment by oil producing companies in the east and an increase in domestic production (nytimes). Aside from oil, natural gas has dropped $.63 per gallon from 2014. This benefits homeowners and motorists, yet as good as it sounds there are some severe downsides when you increase the scope of observation.
Shell recently completed a merger with the large gas distribution company BG Group, but in the wake of this Shell had to cut 2,800 in order to convince investors to go through with the 40 billion pound deal. This cut in staff was seen as an opportunity cost in order to make the deal go through. This compromise came about because of those record low oil prices, “below $35 a barrel in New York the accepted price for a deal this size would have been more like $60 - 70 a barrel.” Says David Cumming head of equities at the investment firm for BG Group.
The loss of jobs in Shell isn’t as bad as the external shocks that could be experienced by political groups in places such as Ecuador, Brazil, and Russia. It’s also possible that Persian Gulf states stop investing money to Egypt in exchange for oil exploration.
Brackett, Ed. "Shell Plans 2,800 Job Cuts as U.S. Oil around $35." USA Today. Gannett, 14 Dec. 2015. Web. 14 Dec. 2015.
"Shell to Cut 2,800 Jobs Once BG Group Merger Completes." The Telegraph. Telegraph Media Group. Web. 14 Dec. 2015.
http://www.nytimes.com/interactive/2015/business/energy-environment/oil-prices.html?_r=0
Cheaper oil and gas is better for everyone, but the trade off was that 2800 people lost their jobs. It's a trade off that they made to have a merger. But I think that its a good business deal because Russia and the Middle eastern oil suppliers will have to lower their prices to keep the USA to buy their oil. They all want the US to buy their oil to they lower their prices and increase manufacturing.
ReplyDeleteThis is a very interesting topic, because oil is the source of where all of our gas comes from. The opportunity cost of those shell workers was more workers for their company, but to the consumers it doesn't affect them, other than low gas prices. Will these low gas prices affect the economy in a negative way? Since the workers were cut, they might spend less money, which in turn means less money is circulating throughout the system.
ReplyDeleteIt's amazing that we can take prices to be this low but I know everybody can not wait for the prices to sky rocket back up. It's weird to think about also how on the other end of the spectrum that people in these oil producing countries are struggling whenever we are doing better, and we are struggling whenever they are doing good. Oil is a nonrenewable good that can never see stable prices ever because we never know when it's gonna run out but for right now hop on the good price and enjoy it while it lasts before it's a thing of the past to get oil for an arm and a leg.
ReplyDeleteHello unknown individual, I thought the post really didn't focus on anything really. The merger deal according to you was made because shell laid off the 2,800 not because the oil prices dropped. It was only after the deal was made that the oil prices dropped, just a little confused and wished you would have expanded on the topic.
ReplyDelete-Tyler 12/17/15
I like this post because so many of us can relate to it, paying for gas as a teenager really isn't that fun so when it is as cheap as it is, there is no longer a hesitation to fill it up because five dollars now can go much farther than it ever did before. I did not realize the sacrifices or opportunity costs that Shell had to give up in order to receive the 40 billion pound deal, cutting 2,800 employees is a loss to their company. The relevancy in this topic to economics is tremendous, gas is a necessity for many therefore the cost of it is always influencing many economic decisions made by consumers. Overall I feel that you could have elaborated more about the positive impact of the prices falling and its significance, and maybe make future predictions of the future of oil supply. Overall nicely done!
ReplyDeleteInteresting post... I've been looking into this topic on my own time, and their's surely many problems with cheap gas prices. Being a driver myself, I must say that I'm enjoying the rather inexpensive gas prices, but I'm nearly positive that this will only stay for the short term. Over seas these prices are currently causing many problems, especially with the companies themselves. In broader terms, the United States economy is also hurting with not as large of revenue in result of the gas prices. I wonder how long gas prices will last under the $2 mark? Good post.
ReplyDeleteOil prices are dropping but i'm not sure this is a direct result of decreasing investment in exploration. Such a trend would decrease supply and increase price. The decrease in price is due to new technologies like fracking that cause a rightward shift in the supply curve. It would have been interesting to explore the effects of this change in domestic oil production on foreign affairs. This could have even been connected to the illicit financing of terrorism groups in the middle east.
ReplyDeleteYour blog post was a little hard to understand at first because of the lack of detail. It's no secret that oil prices are dropping which you attributed to the increased use of domestic oil vs. that imported from the Middle East. However, assuming this is the case a drop in oil prices isn't the direct cause of the layoffs because the decrease in oil costs for the consumer is a result of the decrease in cost of production which actually helps the supplier. The cause of the layoffs was a result of the merging which came about when new technology and opportunities allowed us to use the oil we have available to us in the United States. I think this could have been a little more clear and I definitely think you could've elaborated on the impact on countries in the Middle East who heavily relied on the exportation of oil.
ReplyDeleteIt is quite nice that the oil prices have decreased so much for us consumers but you never take into account the impact on the companies. Although the gas prices may be down, I have heard that record breaking numbers of people are traveling this holiday season due to the low gas prices. It is quite interesting how much impact the oil findings in the Middle East have on us.
ReplyDeleteI don't like that that many people got laid. Overall, yeah it might benefit a lot of us because of the huge drop in gas prices, but I can't help but feel that there was a better solution then laying off that many people. Unless somehow was just an effect of less need because of improvements, then that is somewhat understandable but if it's because of just getting the deal done then that shouldn't happen.
ReplyDeleteI thought your blog post was interesting about how the merger affected the company through jobs losses. On the personal level a drop in gas and oil prices is good for us, but like you alluded to there are bigger implications that could be negative. I wish you elaborated more on the external shocks you mentioned in the last paragraph I think that would have been interesting.
ReplyDeleteI believe Ryan Mulvey meant to say that he feels bad so many people got laid OFF, just to clarify. I too think that there must have been some solution to lower gas prices for the entire nation and still allow so many people to keep their jobs. In the end I don't believe it is worth us paying a few less dollars while a large group of people are now unemployed and unable to provide for themselves and their families. It is very nice that gas is cheaper, but it it brings a bitter taste to your mouth that so many people are suffering so that you can save.
ReplyDeleteMany people celebrate how low the prices have been for gas in the past few years. This allows them to travel more for less, but individuals don't take into consideration the negative side to the affordable gas price of job cuts. Due to the current net income, it was necessary for the Shell company to let go a certain number of employees in order to continue making revenue. Since there was not enough time to let natural attrition work its course, the gas company decided to focus on the more important jobs. By doing so, the marginal product of labor will continue to bring success to the gasoline business.
ReplyDeleteI enjoy cheep gas, as all of us do. But your post really highlighted the trade offs of such and event. Is the trade off worth it? I think so.
ReplyDeleteI enjoy cheep gas, as all of us do. But your post really highlighted the trade offs of such and event. Is the trade off worth it? I think so.
ReplyDeleteOverall this is good. The topic pertains to us because everyone loves cheaper gas. I think it was a smart move for America to expand their trade with other countries. Hopefully oil exchange will continue the way it is, and cheap gas can be forever.
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