Oil Giants Plan to ＂Shrink＂ Amid Slumping Oil Prices

Sluggish oil prices have completely erased the optimism international oil giants felt at the beginning of the year. With Brent crude oil prices hovering between $60 and $70 per barrel, job losses in the U.S. shale industry continue to mount, and market forecasts have turned pessimistic—not only predicting that Brent prices could fall below $60 per barrel but also anticipating a decline in global upstream capital expenditure. Low oil prices have pushed major international oil companies into "contraction" mode, making layoffs and cost-cutting standard operating procedures.

A dramatic shift in industry sentiment within six months

In their first-quarter financial reports, international oil majors stated that even if oil prices remained around $60 per barrel, their operations would face no pressure. At the time, they unveiled aggressive spending plans with no mention of layoffs, and "growth" was the central keyword in their production strategies. Yet just six months later, despite oil prices still fluctuating between $60 and $70 per barrel, the industry's direction has completely reversed.

The U.S. shale oil sector is experiencing its largest wave of layoffs since 2022. In 2022, Brent and West Texas Intermediate (WTI) crude prices fell from over $100 per barrel to under $80 within half a year. According to data from the U.S. Bureau of Labor Statistics cited by Bloomberg, while the current layoff rate (1.7%) is not large in absolute terms, the media noted that oil prices have already dropped 12.5% this year, and with weak oil demand, the situation may worsen further.

Recently, ConocoPhillips' actions cooled down bullish market observers. The company announced it would cut up to 25% of its workforce globally. ConocoPhillips stated that the layoffs would affect various functions and regions, with specific details communicated directly to employees through internal briefings. While the company described the move as part of a restructuring plan aimed at "improving efficiency and simplifying structure," outside observers widely interpret it as a sign that ConocoPhillips is facing difficulties—layoffs being the "standard operation" when oil companies run into trouble.

Reuters noted that Chevron also announced a similarly sized layoff plan in February, though attributing it solely to falling oil prices isn't entirely accurate. Chevron introduced its layoff program early in the year when oil prices first showed signs of weakness, explicitly stating it was related to cost reductions following its acquisition of Hess Corporation. Nevertheless, Chevron itself acknowledged it is confronting a severe market environment.

Warning signals for the shale industry

Besides layoffs, oil companies are significantly cutting expenditures. According to Reuters, based on second-quarter financial disclosures, 22 publicly listed U.S. oil companies have collectively reduced spending by $2 billion. Kirk Edwards, CEO of Laredo Petroleum, bluntly stated: "The mantra in the Permian Basin has shifted from 'drill, drill, drill' to 'wait, wait, wait.'" He added that the wave of layoffs in the shale industry serves as a red alert for the entire U.S. oil and gas sector.

Behind these warnings lie concerns about demand and predictions of oversupply. At the recent Asia Pacific Petroleum Conference (APPEC), several analysts suggested Brent crude prices could fall below $60 per barrel as early as this year and remain at that level through 2026. Wood Mackenzie even predicted that if demand remains weak and no geopolitical events disrupt supply, this international benchmark price could stay around $50 per barrel for several years. However, these forecasts seem to overlook a key point: oil producers often respond to falling prices by cutting output or adjusting growth plans, thereby constraining supply and eventually pushing prices back up—especially when demand proves stronger than expected, a scenario that has occurred multiple times in the past.

Short-term contraction masks long-term resilience

The oil industry has always been cyclical. Although cycle fluctuations have become increasingly irregular in recent years, and oil price movements have increasingly decoupled from physical markets, the underlying cyclical pattern has not disappeared. Oil companies are now undertaking typical downturn measures: pulling back operations, laying off staff, and conserving cash—waiting for the trough to pass.

Wood Mackenzie predicts that global oil and gas exploration capital expenditure will decline by 4.3% this year to $341.9 billion. The Financial Times pointed out that this would be the first drop in spending in the sector since 2020, highlighting the severity of the current situation. More importantly, the publication reported that if Brent prices fall below $60 per barrel, international oil majors would struggle not only to maintain current capital spending levels but also to meet dividend commitments to shareholders.

Interestingly, while analyst communities are almost uniformly bearish on oil prices, few discuss the possibility of a rebound. Yet numerous examples this year have shown that an oil price recovery often requires just one variable to reverse—for instance, U.S. shale oil production growing more slowly than expected. In fact, crude oil output across the lower 48 U.S. states has already declined, reaching 13.4 million barrels per day in the last week of August, down from 13.6 million barrels per day in December last year. Historical experience shows that while industry downturns may be prolonged, prosperity will eventually return.