Oil prices tumbled to close to $30 a barrel yesterday, extending a savage new year sell-off as BP axed thousands of jobs and Brazil's Petrobras cut tens of billions of dollars in spending.
Signalling that it expects no let-up in a market downturn being likened to the slump of the 1980s, the UK-based energy major announced 4,000 job cuts across its exploration and production business, including hundreds in its hard-hit North Sea operations. The cuts came as the price of Brent crude sank to $30.40 a barrel, near 12-year lows, taking its decline since the summer of 2014 to more than 70 per cent.
Supercycle
Daniel Yergin
, author of a history of oil,
The Prize
said: “The supercycle in commodities is ending in great pain. The big worry is what’s really going to happen to the world economy.”
The latest price plunge, ahead of what will be a gloomy set of full-year oil company results, puts the industry’s biggest players under intense pressure to take further action to shore up revenues and protect dividend payouts.
More than $200 billion in project spending has already been cancelled or postponed amid a US supply glut and weaker Chinese demand.
Petrobras, the Brazilian oil company reeling from a corruption scandal as well as the crude price crash, announced on Monday that it was cutting its five-year investment programme by 25 per cent. Its capital spending between 2015 and 2019 is now due to be $98.4 billion, versus $130.3 billion previously.
The US Energy Information Administration has said that low prices would see US crude oil production fall by 7 per cent this year, the first annual decline since 2008.
But US output would still be more than 50 per cent higher than five years ago after the shale boom boosted production by an average of almost 1 million b/d each year between 2011 and 2015.
Producers in the North Sea – from companies such as Royal Dutch Shell and Total to smaller players such as EnQuest and Ithaca Energy – are contending with the most difficult conditions in living memory.
This is because the North Sea, western Europe’s most prolific oil and gas basin, is one of the most expensive places to pump crude in the world. The price rout has resulted in many fields becoming unprofitable.
Forecast
Hedge funds have raised bets against the oil price to near record levels, anticipating further falls, while investment bank analysts are forecasting oil could drop towards $20 a barrel – a level few in the industry thought would be seen again during the boom years to 2014.
Suhail Mohamed Al Mazrouei, United Arab Emirates oil minister, said the first six months of 2016 would be tough but there would be a gradual recovery in the oil market. Opec's strategy of keeping the taps open to drive out high-cost suppliers such as US shale oil producers would be successful, he said, needing at least another 12-18 months. – (Copyright The Financial Times Limited 2016)
