The US cuts to oil jobs and expenditure threaten the output growth
Due to the lower oil price and the largest consolidation in the last generation, the U.S. Oil industry has cut thousands of jobs and billions of dollars in spending. This could be the end of rapid growth in output that made the U.S. world's leading producer. Organization of the Petroleum Exporting Countries (OPEC) and its allies within the OPEC+ group of producers are increasing production to regain market share lost in recent years to the United States. OPEC+ decided on Sunday to increase production by 137,000 barrels a day from October.
These increases have caused international oil prices to drop around 12% in this year, just above breakeven for many U.S. companies. This has led to cuts in spending and job creation that officials from the industry say could reduce production.
If output plateaued or fell, it would undermine the United States' dominance on global markets. It would also challenge President Donald Trump's agenda of energy dominance for the United States. ConocoPhillips, the third-largest U.S. producer of oil, announced last week that it would reduce its workforce by up to 25%. This announcement followed one made by Chevron in February, when it announced that 20% of its employees, or about 8,000 people, would be laid off.
Halliburton cut staff recently. SLB, an oilfield services company, announced earlier this year that it would be reducing its workforce. According to an analysis of earnings announcements for the second quarter, lower oil prices and increasing costs have pushed 22 U.S. public producers, such as Occidental Petroleum Corp., ConocoPhillips and Diamondback Energy to reduce their capital expenditures. This analysis excluded oil giants Exxon and Chevron.
Baker Hughes reports that the U.S. Oil Rig Count - an indication of future activity – has dropped by approximately 69 this year to 414.
Kirk Edwards of Texas' Latigo Petroleum said, "We have gone from a 'drill baby drill' mentality to a 'wait baby wait' mentality here in the Permian.
He said that the market requires oil prices to trade consistently between $70 and $75 per barrel in order for rigs get back to working. U.S. West Texas Intermediate Futures traded at $62.15 per barrel on Monday after closing at $61.87 a barge on Friday.
Edwards said that the situation is having a devastating impact on employment in the United States and will eventually affect production. "At some stage, the growth of U.S. oil production will slow down and plateau. But OPEC will make up for that oil."
Many analysts have already predicted a decline in production, from the 13,2 million barrels a day record reached in 2024. This was fueled by the country's "shale" revolution.
The research firm Energy Aspects predicts that U.S. Onshore production will drop by 300,000. bpd from last year in 2025, while Wood Mackenzie expects U.S. Onshore growth of 200,000. bpd from the lower 48 U.S. States, which is the smallest since 2021, when COVID-19 devastated demand.
According to the U.S. Energy Information Administration's data, the weekly production of the 48 lower U.S. States was around 13,4 million bpd during the last week in August. This is below the 13.6 million peak reached in December.
Energy Aspects analysts Jesse Jones & Paola Romero wrote in a report that "modest crude production will continue to slow as upstream activity stabilises at a lower rate and operators concentrate more on capital discipline and operational efficiency."
IDLE EQUIPMENT, FEWER JOBS
Primary Vision, a market consulting firm, says that while U.S. operators have been reducing rigs in recent months, the U.S. Frac Spread count, which measures equipment used to fracture subsurface rocks and complete wells, has dropped by 39 this year, to 162 last week. This is its lowest level since February 2021.
In an August earnings call, Diamondback Energy CEO Kaes van't Hof stated that "you can't remove 60 rigs from the Permian and 20-30 frac spreads in three months without eventually seeing a response in production."
He added, "With volatility and insecurity persisting, there is no compelling reason for us to increase our activity this year."
Trump's tariffs and trade policies have also increased the cost of materials in the industry, such as casings and steel. ConocoPhillips' CEO Ryan Lance told a town-hall meeting on Thursday that there is a feeling of inflation and tariffs have an impact. The global economy will slow down, and the demand for oil products will fall.
Diamondback, a large driller operating in the Permian Basin, has said that it expects costs for steel casings will increase by almost 25% between now and 2025, as Trump's tariffs on steel take effect. This will raise the breakeven price of every well drilled this year in the United States.
Operating costs have risen from 20% to 35%, a significant increase.
ConocoPhillips announced the layoffs in a video to its employees. The company said that controllable costs had risen from $3 per barrel three years ago to $13 by 2024, which made it more difficult for the company compete.
The company stated in August, during its earnings conference call that "Tariffs are causing some uncertainty which is manifesting itself with equipment sourced internationally and a trend towards inflation."
Texas labor market data showed that U.S. oil production jobs dropped by 4,700 during the first half of the year. Energy services jobs also declined by 23,000, to 628.062, in August, compared to the beginning of the year. While improved drilling efficiency has allowed companies to reduce rigs while maintaining production, these improvements are not enough to keep U.S. onshore production growing or even stable in some basins.
Josh Young, Chief Investment Officer at Bison Interests and energy investment firm, said that the Trump administration's policies limit drilling in areas where there are potential increases in supply.
(source: Reuters)
