Oil market braces for prolonged downturn

The global oil market is poised to enter a prolonged downturn in crude prices, potentially lasting several years. The world's largest oil companies, including BP, Chevron, ExxonMobil, Shell, and TotalEnergies, are taking steps to safeguard their businesses amid persistently low oil prices and shrinking profit margins.

According to the Financial Times, these companies are braced for a prolonged downturn in crude prices, as they seek to reassure investors and prevent abrupt capital shifts away from the oil sector.

ExxonMobil, which has slashed spending by $13 billion since the pandemic-hit year of 2020, claims it is now planning for scenarios even more severe than in 2020.

Chevron, which is shrinking its workforce by a fifth, reassured investors that it would produce $9 billion of free cash flow with oil at $60 a barrel. Shell said it would be able to pay its dividend even if oil dropped to $40, and that its share buybacks would continue at roughly half the current rate at $50 a barrel.

TotalEnergies said the reaction this time was the same as during the coronavirus crisis - “no panic”, the company had declined to cut its dividend even during the worst of the pandemic.

Big Oil collectively trimmed capital expenditure plans by 2% over the course of the recent earnings season. Capital spending this year is projected to reach $98 billion.

Brent crude oil is expected to trade at $65 per barrel this year.