ConocoPhillips became the latest major oil company to chop staff numbers to deal with the oil-price crash, and more layoffs in downtown Calgary are likely as the industry digs in for a lengthy downturn.
The Canadian unit of the Houston-based oil major told employees on Wednesday that it was reducing its work force by about 200 workers, or 7 per cent of its total, spokeswoman Kristen Ashcroft said.
Conoco's cuts follow hundreds of job losses announced on Tuesday by Nexen Energy ULC, which is controlled by China's CNOOC Ltd., and Talisman Energy Inc., now being taken over by Repsol SA of Spain – all in response to oil's swoon.
Industry-wide layoffs since the start of the year now number in the thousands, although most have been in field operations. The loss of white-collar jobs shows the slowdown has entered a new phase that could further crimp already-weakening Alberta and Canadian economies.
Highlighting the predicament, the Organization for Economic Co-operation and Development cut its projections for Canada's growth this year and next, citing the skid in oil prices and other commodities.
"I think we're going to see more [industry] spending cuts because people have to adjust their plans even more than they already have," said Jackie Forrest, economist with ARC Financial Ltd. in Calgary.
"I expect prices will stay in this range for the next few months but there could be periods where they drop further for a short time period. Over all, for the second quarter, we expect weaker prices than we saw for much of the first part of 2015."
Talisman is reducing its head office staff 10 to 15 per cent, which equates to 150 to 200 employees.
None of the layoffs is a function of Talisman's impending change of control from public shareholding to Repsol, said spokesman Brent Anderson. "This is due solely to the decline in global commodity prices and our reduced capital budget for 2015." Nexen said on Tuesday it was cutting 400 positions including 340 in North America and 60 in the North Sea.
Early on Wednesday, West Texas intermediate crude tumbled to a six-year low below $42.50 (U.S.) a barrel after the U.S. Energy Information Administration reported that already-swollen inventories grew by 9.6 million barrels last week. At 458.5-million barrels in storage, U.S. stockpiles are at the highest seasonal level for at least 80 years.
But oil rallied late in the session after the U.S. Federal Reserve signalled that a return to historical interest rates will be gradual, even though it is open to the first hike in a decade, which drove down the value of the U.S. dollar. WTI jumped $1.20 to settle at $44.46.
The unexpectedly large storage number "spooked" the futures market, said John Kilduff, a partner at hedge firm Again Capital.
"There's no relenting on the imports; there's no relenting in the domestic production, and the refineries are still operating below 90 per cent [of capacity], and they can't chew through it fast enough," Mr. Kilduff said.
Despite the glut, foreign producers are still battling for market share in the U.S. Imports averaged 7.5 million barrels a day for the week ended March 13, nearly 200,000 b/d more than the same time last year. Canada is the largest foreign supplier to the U.S.
Mr. Kilduff said there is growing concern in the market that the storage at the Cushing, Okla., delivery hub could hit capacity constraints, leaving producers with no market for surplus production. Cushing is vital because the crude under WTI futures contracts is deemed to be delivered there.
But Ms. Forrest said those fears are overblown. She expects imports to decline as North American prices weaken compared with international levels. And she observed that U.S. shale producers are ratcheting back operations, with the Energy Information Administration forecasting that production will start to decline in April.
"Even if we were to continue at this pace – which is highly unlikely – we wouldn't hit a physical constraint in general in the U.S. until early June," she said. "And the reality is I don't think we're going to see the inventory builds continue at this pace."
Still, the ARC Financial economist said the rapidly filling storage tanks bode ill for Canadian producers, whose prices are set against WTI.
"In the longer term, this is going to cause pressure on the oil markets in North America for some time to come. Even if we do see tight oil pull back as people expect by mid-year, it's likely these inflated inventory levels will stick around as long as another year. And that's going to weigh on prices because it's just such a large amount of inventory to work off over time."