Oil giants slash jobs and projects as crude plunges below $66

Oil producers are in panic mode. Chevron, BP, ConocoPhillips, Aramco, and Petronas have started slashing jobs, cancelling drilling projects, and offloading assets as crude prices keep falling.

The cuts started after Brent tumbled from its post-invasion highs and OPEC made a weekend decision to ramp up production, ignoring warnings of oversupply.

According to the Financial Times, the world’s top oil and gas companies are now moving faster than they did during the 2020 crash. Tens of thousands of workers are being kicked out. 

Spending is frozen. Some projects have been shelved, others are being dumped entirely to balance the books.

Chevron and BP cut jobs as crude prices collapse

Chevron and BP have already laid off thousands of workers. At the same time, both companies are racing to find tens of billions more in cost savings. Spending plans are being pulled back.

Ongoing projects are either being paused or listed for sale. ConocoPhillips followed them last week, cutting more staff as US shale producers struggle to stay alive under lower prices.

The US shale sector is getting hit the hardest. Every high-cost operation is bleeding cash. Brent crude is trading below $66 a barrel, and firms can’t break even, let alone pay dividends and repurchase shares. BP has already scaled back its buybacks. Morgan Stanley said in a note that more oil majors will follow.

Even state-run companies aren’t immune. Saudi Aramco just sold a $10 billion stake in its pipeline network to raise cash. Malaysia’s Petronas has slashed 5,000 jobs. Basically, no one is safe, no matter how big they are. Everyone’s trying to stay afloat, not expand.

Crude prices have dropped nearly 50% since their peak after Russia’s invasion of Ukraine. But instead of dialing back, OPEC decided to push even more oil into the market. That decision, made over the weekend, will add more pressure to prices.

The cartel, which had previously been cutting output to protect prices, has now flipped. For five straight months, they’ve focused on regaining market share, even if that means drowning the US shale sector in cheap barrels.

Russia fails quota as OPEC increases output

Russia missed its August production quota under the OPEC agreement. The country pumped 9.175 million barrels per day, which was higher than July but still about 84,000 barrels below its target. The quota included compensation cuts that were agreed earlier to make up for previous overproduction.

Russia has a track record of falling behind on these deals. It agreed to reduce supply after going over its limits, but the deadlines and cuts keep changing. Officials say that’s because of seasonal conditions and the geological structure of Russian fields.

But regardless of the excuses, the country’s output still isn’t keeping up.

Unlike Russia, Saudi Arabia holds over 2 million barrels per day of idle capacity and can boost supply almost instantly. Even after meeting its OPEC commitment, it still has plenty of room left. Russia, on the other hand, can’t raise production fast enough to benefit from the extra quota space it was given.

OPEC promised an increase of 1.66 million barrels per day. But adjusting for compensation cuts and capacity limits, only about 1.15 million will actually show up. That means the group is overselling its actual supply gains. Still, it’s enough to tip the market further into oversupply.

The alliance holds more than 3 million barrels per day of spare capacity. Most of that is sitting in Saudi Arabia, the United Arab Emirates, and Iraq. They’re the ones who can turn the taps on or off whenever they want. Everyone else, especially Russia, is just trying to catch up.

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