Shares in some of the world’s biggest energy groups tumbled on Friday as the collapse in oil prices battered the profits of ExxonMobil and Chevron, capping a week in which European rivals announced thousands of job losses and slashed spending by billions of dollars.
As Exxon, the US giant seen as best insulated from the crude price crash, reported its worst quarterly profits since 2009, its main US competitor Chevron suffered a huge $2.2bn loss in exploration and production in the three months to June 30.
For the first time, the biggest and strongest industry operators are feeling the full effect of a plunge in Brent crude since last summer that has led to an estimated 70,000 job losses worldwide and caused some $200bn of spending on major new oil and gas projects to be shelved.
The slide in the oil price, which began around this time last year, accelerated in November when Opec, the producers’ cartel, decided not to cut output in the face of a US supply glut.
After a brief recovery this spring, the oil price decline resumed in July, with Brent crude, the international oil benchmark, posting its biggest monthly fall since December. It now stands at $52.08 a barrel, down from $115 in June last year.
Analysts say the renewed decline was triggered by the surprising resilience of US shale output in the face of lower prices, as well as the nuclear deal with Iran which has raised the prospect of more barrels hitting an oversupplied market.
The US oil benchmark West Texas Intermediate fell by a fifth over July to approach $47 a barrel, its worst monthly decline since Lehman Brothers collapsed.
Saudi Arabia, which effectively leads Opec, is widely believed to be attempting to squeeze out higher-cost production in a battle for market share. Iain Conn, chief executive of Centrica, Britain’s biggest domestic energy supplier, told the Financial Times that he believed prices were likely to stay within a $45 to $70 range.
Rex Tillerson, Exxon’s chief executive, blamed the sharp fall in crude for a 52 per cent year-on-year slide in its second-quarter earnings to $4.2bn and a net loss in its US upstream business, with a robust refining result only partially offsetting the effects of oil’s collapse on revenues.
“Our quarterly results reflect the disparate impacts of the current commodity price environment, but also demonstrate the strength of our sound operations,” Mr Tillerson said.
Chevron’s profits plummeted 90 per cent, hitting their lowest level in more than a decade, as the oil major also suffered the effects of weaker crude. It took impairments of nearly $2bn and other charges of about $670m relating to projects it had suspended.
Shares in the companies fell on Friday, with Exxon and Chevron closing down 4.5 per cent and 5.1 per cent, respectively. ConocoPhillips sank 3.3 per cent.
Royal Dutch Shell and Centrica this week announced that they were shedding more than 12,000 jobs between them. Shell cut capital spending 20 per cent, with its chief Ben van Beurden warning of a “prolonged downturn” ahead.
ExxonMobil earnings fall 52%
Plunge comes despite increased production and improved results in its downstream operations.
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Oil companies and traders are now bracing themselves for several years of low prices. WTI for delivery in five years’ time has slipped to less than $60 a barrel, below the level that long-dated contracts dropped to in early 2009, at the height of the global financial crisis.
The rout in oil extended across commodity markets in July, with a key natural resources index posting its largest monthly fall in seven years.
Copper ended the month down 9 per cent, its second biggest monthly drop since 2012. Aluminium hit a new year six-year low of $1,624.5 a tonne on Friday, and was down 5 per cent for the month. Iron ore, the key ingredient in steelmaking, lost 10 per cent.