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Falling crude prices may affect Michigan's small oil industry

Dec 21, 2014

Falling crude oil prices may put the brakes on new oil exploration in Michigan.

Michigan’s not a big oil producer.   The state ranks 17th in the country in oil production. But companies have been drilling more wells in recent years. 

Around 8,000 people are employed by businesses that drill for oil and natural gas in Michigan.

However, sharply falling world crude oil prices are expected to dramatically slow that down

Credit Michigan Oil and Gas Association

On Friday, crude oil futures prices ended higher on the New York Mercantile Exchange. The near-month contract for the benchmark grade rose $2.41 -- closing at $56.52 a barrel. But that’s down significantly from this summer, when crude oil was trading for more than $100 a barrel.

“There are points where you just can’t get a rate of return on drilling wells,” says Lee Smith, an oil industry consultant. “If you can’t get a rate of return, it is a business and you just won’t do it.”   

Smith predicts if crude oil prices stay low, that may lead to many smaller Michigan oil companies merging. 

Still Erin McDonough, with the Michigan Oil and Gas Association, does not expect the industry is going to “bust” in Michigan. 

“We haven’t experienced a lot of those really sharp peaks and valleys because we have just been a state that has steady, stable production. We expect that to continue,” says McDonough.