Newsweek reports Houston-based ConocoPhillips plans to lay off up to a quarter of its workforce or roughly 3,200 employees and contractors.
The company says it’s part of streamlining and restructuring, but it’s worth noting a number of other oil companies have announced similar plans this year as oil prices and crude oil futures have fallen.
Against that backdrop, some news over the weekend from OPEC, which has been increasing production since April.
Matt Smith, head analyst at Kepler, joined Texas Standard to bring us up to speed on the latest from the energy front. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: So the big news over the weekend: OPEC’s decided to unwind a new tier of production cuts, boosting output essentially. How big a deal is this?
Matt Smith: Well, it’s a big deal from a symbolic perspective, right? Because it signals that OPEC+ believes the market is strong enough to take these additional barrels.
As you mentioned, they’ve already unwound 2.2 million barrels a day of cuts. This latest one is for 1.65 million barrels per day. But the devil is in the details, really, because that’s going to be spread across a year here. So it’s only about 135,000 barrels a day – around that number.
So, the cuts are going to be small and incremental, but also the volume is likely to be lower than announced because some members have been unable to compensate for earlier oversupply here. So yeah, it’s symbolic, really.
Well, I know that there’s been a lot of talk about a potential oil glut. I mean, isn’t this likely to push prices lower? Why are they doing this in the first place?
Well, I think it gives them the flexibility to add more onto the market if they feel that the market can take it. But it is surprising because, to your point, a lot of us that follow oil closely can see oversupply coming.
And so essentially, you’ve got a lot of supply that’s coming from non-OPEC, so from Canada and Norway, but particularly from Guyana and Brazil – so from Latin America. That’s hitting them.
But it’s happening at a seasonal time, as well, when you have weaker demand. So you have refineries going through maintenance. So it’s kind of a double whammy: Stronger supply, weaker demand, and we’re going to get this surplus – causing inventories to be higher and therefore weighing on prices.
So, gasoline prices should follow.
Yeah, exactly. And particularly because there’s that added seasonal element there where you see gas prices lowest – kind of December, January time. So, if we’re at $3.20 on the national average right now, $2.75 for the Texas average, we’re going to be dropping at least a quarter, if not more here in the next month or two.
We’ve got to talk about something else that’s obviously important to the oil industry and certainly important to everyday Texans, too. Wednesday marks the peak of the Atlantic hurricane season. Feels like this has been a rather quiet season, no?
It really has and it’s funny because I remember we talked about this before the season started and because it was expected to be more active than usual and that kind of how it’s felt over the last few years. But we’ve only had six named storms five tropical storms, one category 5 hurricane – that was Erin and that didn’t make landfall, that was just whirring in the Atlantic there.
There was the one in Texas, though. The remnants of Tropical Storm Barry caused the deadly flooding in Central Texas there over July 4th holiday. So that was terrible, right, but that’s the limited impact that we’ve seen from the Atlantic hurricane season.
To your point, on Sept. 10, you’re almost guaranteed to see a named storm in the Atlantic and yet there is nothing. We haven’t seen anything recently and there’s nothing on the forecast for the next seven days either.
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Complacency? You concerned about any of that?
No, because it ramps up to Sept. 10 and then it ramps down again. And so as long as we can get through September here, it seems like we’ve got away unscathed without having a storm make landfall in Texas.
I mentioned these layoffs in the Texas oil industry. Writ large, what’s the health of the Texas oil industry like as far as you can tell?
It’s starting to be concerning, right? Particularly if we see prices drop below $60 moving towards $55 on WTI by year end here.
What that means is that we’re going to be seeing Texas producers likely shutting in some production. We’re already forecasting that production will be lower next year because of the prices being in check. And so very much a concern on that side of things.
