Falling Crude Prices Creating Havoc for Big Oil, Also Affecting Other Sectors

One day after El Dorado-based Murphy Oil Corp. announced that it was cutting 7% of its 1,500 employee workforce, three of the world’s largest oil giants announced they were also cutting thousands of oilfield jobs across the globe.

On Wednesday, Shell announced plans to trim more than 6,500 jobs in its efforts to save $7 billion amid a slump in oil prices that now has lasted more than a year. Shell’s announcement followed Chevron Corp.’s revelation on Wednesday that it plans to slash more than 1,500 jobs.

Earlier in the week, BP Plc implemented across-the-board wage freezes as part of the company’s previously announced cost-savings plan. Earlier this year, BP said that it would sell more than $40 billion in assets and reduce capital spending by $2 billion to alter the British oil giant’s $24 billion spending program across the globe. BP has refused to say how many jobs it plans to cut.

Houston-based ConocoPhillips, the smallest of the integrated U.S.-based oil companies or super majors, has also said that it plans to continue layoffs in its efforts to cut $1 billion in spending over a two-year period.

On Friday, Wall Street will be anxiously watching how ExxonMobil Corp. will respond to the industrywide cost-cutting when it reports second quarter earnings before the opening bell.

Wall Street expects the Irving, Texas-based oil giant to report second quarter income of $1.12 a share, down 45% from $2.05 a share, a year ago, according to Thomson Reuters. ExxonMobil, whose XTO Energy subsidiary operates in the Fayetteville Shale, is forecasted to bring in revenues of $72.5 billion, compared to $112 billion a year ago.

OIL INDUSTRY SLOWDOWN SPILLS INTO OTHER INDUSTRIAL SECTORS
The industrywide cost-cutting follows a report Thursday by global outplacement firm Challenger, Gray & Christmas that of the 140,214 job cuts announced in the first quarter, 47,610 were directly attributed to falling oil prices.

“Without these oil related cuts, we could have been looking at one of the lowest quarters for job-cutting since the mid-90s when three-month tallies totaled fewer than 100,000. However, the drop in the price of oil has taken a significant toll on oil field services, energy providers, pipelines, and related manufacturing this year,” said John Challenger, chief executive officer of Challenger, Gray & Christmas.

First quarter job cuts were dominated by the energy sector, where employers announced 37,811 job cuts in the first three months of 2015. The three-month total is up a whopping 3,900% compared to a year ago, when fewer than 1,000 energy cuts were reported.

“Oil companies are not the only energy-related firms who are getting hit this year. Coal mine closings in West Virginia and elsewhere around the country are also costing jobs,” noted Challenger.

Even with recent job cuts by Murphy, Shell and other companies in the energy sector, Challenger said the pace of energy-sector job cuts appears to be slowing. Only 1,279 job cuts were announced by energy firms in March, which is 92% fewer than the 16,000 announced in February.

MANUFACTURERS HIT, AUTO AND TRANSPORT SECTOR IMPROVES
Still, the heaviest job cutting in March occurred among industrial goods manufacturers, whose payroll reductions totaled 9,383 during the month. That brings the sector’s 2015 total to 17,738, which ranks third among all industries.

“Oil prices impacted energy firms directly at the end of 2014 up until February. Now, peripheral manufacturers are losing contracts and laying off workers in an effort to limit major losses,” Challenger said.

The flip side of losses due to oil prices appear to be occurring in automotive and transportation hiring. Automotive manufacturers announced over 7,000 new jobs so far this year, according to Challenger tracking. That is up from just over 2,000 by this time last year. Meanwhile, companies in the transportation sector have announced over 6,700 new jobs, compared to just over 2,000 through the first quarter of 2014.

“This is just a fraction of the actual hiring occurring across the country, but a jump in these numbers suggest auto and transportation companies are benefitting by the oil slump which could ultimately positively impact consumers,” said Challenger.

Top industry analysts say that oil prices could remain in the slump for the rest of the year and these up and down trends could continue. Goldman Sachs currently forecasts West Texas Intermediate crude, the U.S. benchmark, to reach $45 a barrel in October, with international Brent crude at $50 a barrel.

In trading Thursday, light, sweet crude for September delivery recently traded flat at $49.70 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 0.6% to $53.70 a barrel on ICE Futures Europe.