How Oil Price Affect Your Equipment Purchasing Decisions

The price of the oil is like global heartbeat, affecting everything in our industry. When it goes up and down, it changes how oil companies spend their money. If you work in oil and gas industry, you know this well. But have you ever thought, how these price changes directly affect your decisions to buy new equipment?

In simple terms, the price of oil acts like a red or green light for the entire industry. Let’s break down how this works.

When Oil Price is High: The “Go” signal

High oil price means oil companies can make more money from every barrel they produce. This creates a positive chain reaction.

1.     New Equipment Demand

To start these new projects, oil companies need new equipment---new pumps, new drills and new well head components. The demand for brand-new, high-spec equipment goes up.

2.     More Investment

Oil companies are confident and have more cash. They invest in new drilling projects and explore in harder-to-reach places.

3.     Replacement" over "Repair

It becomes more most-efficient to replace old or unreliable equipment with new brands rather than spending money and time on frequent repairs. Downtime is enemy.

4.     Focus on Speed and Performance

The goal is to produce oil as fast as possible to gain benefit from the high prices. Therefore, buyers prioritize equipment that delivers high performance and fast delivery. Sometimes even over the lowest price.

In short, high oil prices create a seller's market for equipment manufacturers.

When Oil Price Is Low: The “Caution” Signal.

When the prices fall, company profits shrink. Companies must drastically reduce expenses and be more cautious with spending.

1.     Projects delays or cancellation

Oil companies cut their investment. New, expensive projects are put on hold. It is no longer makes financial sense to drill in high-cost locations.

2.     Shift to Maintenance and Repair

Instead of buying new equipment, companies focus on maintaining and repairing what they already have. The demand shifts from new procurement to spare parts and repair services.

3.     Used and Refurbished Equipment Becomes Popular

To save capital, companies increasingly look for reliable used or refurbished equipment.

This becomes a very attractive, cost-effective alternative.

4.    Price sensitivity

If companies must buy new equipment, they become extremely price-sensitive. They look for good, used equipment or suppliers offering significant discounts. The focus is on value and cost-saving.

What This Means for Your Procurement Strategy

1.     Be Proactive in a High Market

If prices are high and you need new equipment, plan and order early. Delays can be costly when every day of production counts.

2.     Be Strategic in a Low Market

A low-price environment can be an opportunity. It’s a good time to upgrade your equipment at a lower cost, as suppliers may be more willing to negotiate. You can focus on equipment that improves efficiency and lowers your long-term operating costs.

3.     Value Over Price

In a low-price environment, the cheapest option isn't always the best. Choose reliable, durable equipment that minimizes future repair costs and downtime.

4.     Build Strong Partner Relationships

Work with equipment suppliers who offer flexibility, good service, and support, not just a product. A partner who can help you with maintenance during a downturn is invaluable.

Conclusion

The oil market will always have ups and downs. While it's tempting to react only to today's price, the smartest strategy is to think long-term.

Instead of just following the price cycle, focus on investing in reliable and efficient equipment that will save you money over its entire lifespan, regardless of the current oil price. This balanced approach will make your operations stronger and more resilient to market changes.