It is tough out there in the oil business.
John Watson, chief executive of Chevron, one of the biggest oil and gas companies in the US, was on CNBC on Tuesday with Brian Sullivan, and he painted a pretty bleak picture.
“There are adjustments that are taking place in the business,” he said.
“If you look in the United States, production has fallen 500,000 barrels a day in the last six months. If you look at the capital that is being withdrawn from the business, hundreds of billions of dollars are being taken out of the business right now.”
OPEC, the Organisation of Petroleum Exporting Countries, recently decided it would not scale back on production, leading to another drop in oil commodity prices. West Texas Intermediate crude oil is trading below $40 a barrel.
“What we’ve seen over the last couple of years is Saudi Arabia has increased their production,” Watson said.
“We have the miracle of hydraulic fracturing, which has expanded oil production in the US. We have Iran growing production. We have Iraq growing production. And we, as an industry, we’re producing more than the market is demanding.”
In the US, oil production is falling. That is having a severe impact across the energy sector. Banks are already pulling the plug on some of their loans to energy companies. Housing markets in oil-focused cities are weakening.
“We’re seeing it now in the Bakken. We’re seeing it in the Eagle Ford. The Permian is still growing, but in aggregate, US production is declining,” Watson said.
“So we are seeing it take place today, and I expect you’ll see the US, which is producing maybe a little over nine million barrels a day now, down from 9.6 earlier in the year, it will be somewhere in the eights next year. And so that will help the market balance.”
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