Mendoza School of Business

Oil industry hits ‘perfect storm’

Published: February 3, 2016 / Author: David Koenig and Danica Kirka, Associated Press

Oil companies are cutting investment, slashing jobs and selling off pipelines and other assets as crude prices plunge.

“It’s going to be a very turbulent year for our industry,” says BP CEO Bob Dudley.

The latest warnings came from Exxon Mobil, which reported Tuesday that fourth-quarter earnings fell 58 percent in the oil giant’s weakest quarter since 2002. The results were even worse at BP, which posted a 91 percent decline in profit.

Those reports follow Chevron Corp.’s first money-losing quarter in more than 15 years and Royal Dutch Shell’s warning that its 2015 profit fell sharply.

Even with a big glut of oil and low prices, producers are pumping to earn what they can. Exxon boosted production of oil and natural gas by nearly 5 percent. Oil companies are counting on seasonal demand to pick up some of the slack later this year, but it is anyone’s guess how long the current lower crude prices will last.

Crude prices first fell below $30 last month from above $100 in mid-2014. Consumers are benefiting from cheaper gasoline and other fuels, but oil companies and employees are feeling the pain.

“I expect continued layoffs, restructurings, and consolidation among oil and gas companies,” said Gianna Bern, an associate professor of finance at the University of Notre Dame. “We are witnessing the perfect storm in this industry.”

Read the entire story on the Associated Press website.