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Bloomberg
Oil companies have spent three years slashing spending and firing workers to protect profits, only to find their hard work blown away as prices entered another bear market.
The MSCI World Energy Sector Index is heading for a second consecutive quarter of declines, mirroring the drop in crude. The 90 companies that make up the index, including giants like Exxon Mobil Corp. and Royal Dutch Shell Plc, have together lost $115 billion in market value since the start of April, according to data compiled by Bloomberg.
“The biggest companies are improving a lot operationally,†said Iain Armstrong, an analyst at Brewin Dolphin Ltd., which owns shares in major energy producers. “But the oil price will continue to drive the shares†and the outlook isn’t great.
Energy companies started the year on a high note. They were the best performers on the MSCI World Index in 2016 after the Organization of Petroleum Exporting Countries and its allies agreed to production cuts in December. However, the best first-quarter profit in years gave way to the realization that OPEC’s historic deal wasn’t eliminating the global supply glut as quickly as intended. Even an extension of the curbs until March 2018 couldn’t stop prices heading for the biggest quarterly decline since 2015.
Brent crude, the global benchmark, has fallen about 10 percent since the beginning of April as US production rose and hundreds of millions of barrels of surplus fuel inventories proved difficult to shift.
Companies reacted quickly to the downturn that began three years ago after prices tumbled from above $100 a barrel to below $50 today. Producers squeezed their suppliers by renegotiating contracts, delayed or canceled costly projects and eliminated tens of thousands of jobs to show the world they could live with lower oil prices.
Q1 results showed some payoff for all that work. Profit per employee had dropped steadily for Exxon Mobil, Shell, BP Plc and Chevron Corp. throughout the downturn. For Shell, that metric doubled in the first three months of the year compared with the preceding period as earnings rose.