Oil price tumble hits jobs and capital expenditure

Oil prices tumbled to within a whisker of $30 a barrel on Tuesday, 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 internationally traded Brent crude on Tuesday sank to $30.34 a barrel, near 12-year lows, taking its decline since the summer of 2014 to more than 70 per cent.

On Wednesday morning, Brent crude bounced back by 2.5 per cent to $31.64, while Nymex West Texas Intermediate was up a similar amount at $31.22, with both contracts finding support after the US benchmark briefly dipped below $30 in the previous session.

RBC Capital Markets said “stronger-than-expected Chinese trade data” helped the bounce. Chinese exports climbed for the first time since June last month, outpacing forecasts with figures that are likely to spark talk about how a weaker currency may be aiding the economy.

However, Daniel Yergin, author of a history of oil, ‘The Prize’, told the Financial Times: “The supercycle in commodities is ending in great pain. The big worry is what’s really going to happen to the world economy.”

The recent 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 $200bn in project spending has already been cancelled or postponed amid a US supply glut and weaker Chinese demand.

“People are slamming on the brakes. Companies have to be prudent in the face of what’s happening. It’s a wrenching period,” said Mr Yergin.

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 $98.4bn, versus $130.3bn previously.

The US Energy Information Administration said on Tuesday that low prices would see US crude oil production fall by 7 percent this year, the first annual decline since 2008. US output, though, would still be more than 50 per cent higher than five years ago after the shale boom boosted production by an average of almost 1m b/d each year between 2011 and 2015.

In the UK, trade unionists reacted with dismay to BP’s announcement that 600 of the job losses would fall within its North Sea operations, including Aberdeen, the headquarters of the UK oil and gas industry, and the Sullom Voe terminal in Shetland. One-fifth of the workforce there would go.

The job cuts, which will affect employees and agency contractors, will reduce the numbers employed across BP’s upstream business by 17 per cent to fewer than 20,000 and affect its operations in Azerbaijan, Angola and the Gulf of Mexico. The group had 84,500 employees worldwide at the end of 2014.

“This is all about us needing to be more competitive and to recognise the increasingly challenging business environment,” said a BP spokesman. “We have said for some time we expect oil prices to remain lower and to remain lower for longer — and this is certainly coming true.”