Big Oil’s early-year optimism has faded.
With Brent stuck near $60–$70, shale employment is falling.
Forecasts have turned bearish, with talk of sub-$60 Brent and a drop in global upstream capex, raising doubts that majors can sustain current spending and dividends if prices stay low.
In their first-quarter financial reports this year, Big Oil majors signaled they were doing just fine in a $60-per-barrel oil environment. Spending plans were aggressive, there was no mention of job cuts, and production plans featured the word “growth”. Six months later, with the price of oil still hovering between $60 and $70, things are changing.
Oil jobs in the U.S. shale patch were falling at the fastest pace since 2022, when Brent crude and West Texas Intermediate went from over $100 per barrel to below $80 in a matter of six months. In absolute terms, the job loss was not that much of a big deal, standing at 1.7%, according to data from the Bureau of Labor Statistics cited by Bloomberg this week. But oil prices are down by 125 since the start of the year, the publication recalled, adding that things were only going to get worse because demand for oil was “tepid”.
ConocoPhillips, meanwhile, served a blow to the bullishly minded among oil market observers, saying also this week it would cut as much as a quarter of its global workforce. The company said reductions will occur across functions and geographies, with further details to be shared directly with staff through internal briefings. The job cuts are part of a reorganization drive aimed at making the company more efficient and its structure simpler. The move, however, was taken to mean Conoco was in trouble and doing the first thing oil companies do when they are in trouble: shedding jobs.
Reuters noted a job cut announcement of a similar scale made by Chevron in February this year. However, the suggestion that Chevron decided to slash a fifth of its workforce because of the oil price decline is a bit of a stretch. Chevron announced its job cuts plan early in the year when the price depression was just beginning. It also motivated it with the need to cut costs following its megadeal for the acquisition of Hess Corp.
That said, the company itself noted the challenging environment it was operating in, with CEO Mike Wirth describing the final quarter of 2024 by saying, “I’m not going to call it the perfect storm, but it was a quarter where there were a lot of things that all went in one direction, and it was a negative direction.”
Along with jobs, oil companies are also cutting spending. According to Reuters, 22 public oil companies in the United States, including Conoco, Diamondback Energy, and Occidental, but not the supermajors, had cut a combined $2 billion in spending, as reported in their statements for the second quarter of the year. “We’ve gone from ‘drill, baby, drill’ to ‘wait, baby wait’ here in the Permian,” Latigo Petroleum chief executive Kirk Edwards told Reuters. Edwards separately told the Financial Times that the job cuts in the shale patch were “a flashing red warning light for the entire US oil and gas industry.”
The warning light is flashing mostly because of demand projections and predictions of an oil glut. At the Asia Pacific Petroleum Conference this week, a number of analysts said Brent crude was about to dip below $60 and stay there as early as this year and into 2026. Wood Mackenzie even forecast that the international benchmark would remain at around $50 per barrel for several years due to weak demand—unless a geopolitical event disrupts supply. What these projections appear to ignore is that oil producers tend to respond to price drops by curbing production rates or revising growth plans, limiting available supply. This in turn eventually starts affecting prices, pushing them higher—especially if demand turns out stronger than previously anticipated, which has happened a few times.
The oil industry is a cyclical one. Cycles have certainly become more erratic lately, with price movements increasingly divorced from the physical market, but they are still around. So oil companies are doing what they have always done during a downturn—hunker down, cut jobs, and wait the slump out.
Wood Mackenzie has predicted that global capital expenditure on oil and gas exploration is set for a decline of 4.3% this year, for a total of $341.9 billion. The FT cited the research firm as saying this would be the first reduction in global oil and gas exploration spending since 2020, which highlights how serious the situation potentially is in the industry. Not only this, but Big Oil majors would be unable to stick to their current capital spending programs if Brent falls below $60, the FT wrote this week. More importantly for shareholders, they would not be able to stick to their dividend programs.
Interestingly, virtually no one in the analyst community sees a scenario where oil prices rise. Yet this year has served many examples of just how easy it is for prices to rebound—all it takes is the reversal of one assumption about the current state of the oil market, such as U.S. shale growth. Said growth has already reversed, with the Lower 48 total for the final week of August at 13.4 million barrels daily, down from 13.6 million barrels daily last December. A bust may be prolonged, but it is always followed by a boom.
Credit: Oilprice.com
