The price of benchmark Brent crude dropped a further 4% on Wednesday towards $64 a barrel as the Organisation of Petroleum Exporting Countries (Opec) said it expected global demand for its crude next year to fall to its lowest level in more than a decade, far below the current output.
In a monthly report raising the possibility of surplus supplies putting further pressure on prices, the producers’ cartel forecast demand would drop to 28.92m barrels per day, down 280,000 bpd from its previous expectation and more than 1m barrels a day less than it currently produces.
The bulletin coincided with official data showing that inventories of US crude rose unexpectedly last month, when stocks had been expected to fall.
On Wednesday supermarkets responded to the falling oil price by dropping fuel prices again, with Asda, Morrisons and Tesco all cutting 1p from a litre of petrol. RAC fuel spokesman Simon Williams said dramatic falls in the wholesale prices of petrol and diesel gave scope for petrol prices to come down by more than 8p a litre and diesel by more than 6p a litre in the next fortnight.
The slumping oil price, down from around $115 a barrel since June, has added to the pressure on BP, already undergoing a huge restructuring that has included selling off billions of dollars of assets following the Gulf of Mexico disaster.
The oil group said the bulk of the latest $1bn restructuring cost will go towards staff redundancies in all segments, including oil exploration and production, refining and trading and administration.
Bob Dudley, chief executive, said: “We have already been working very hard over these past 18 months or so to right-size our organisation as a result of completing more than $43bn of divestments. We are clearly a more focused business now and, without diverting our attention from safety and reliability, our goal is to make BP even stronger and more competitive.
“The simplification work we have already done is serving us well as we face the tougher external environment. We continue to seek opportunities to eliminate duplication and stop unnecessary activity that is not fully aligned with the group’s strategy.”
Company insiders said the cuts will hit every area of the business, although one said they were “unlikely to affect people on the platforms.
“It will be in the systems that support our operations and where BP has a significant corporate presence, so the US, the UK, Azerbaijan, Germany.”
BP employs almost 84,000 people worldwide, including 15,000 in the UK. Many back-office jobs are not needed now because BP has 50% fewer offshore fields, 50% fewer pipelines and 30% fewer wells after selling off more than $40bn worth of assets to pay for the cost of the Deepwater Horizon accident.
BP’s shares closed down 1.56% at a two-year low of 399.6p, partly on the back of the news from Opec, while those of rival Shell lost 2.37% to £20.35. The oil industry is now fretting about how much further oil prices could fall, with the Chicago Mercantile Exchange reporting that it has a surge of investors betting US crude could fall eventually as low as $40.
Last month Opec decided not to try and prop up prices by cutting output, instead retaining its output target of 30m bpd in a move that sent prices plunging. Major exporter Saudi Arabia urged fellow members to use lower prices to attempt to combat the growth in US shale oil, which needs relatively high prices to be economic and has been eroding Opec’s market share.
One oil industry source added: “It doesn’t look like anybody is blinking at the moment does it? The oil price will stay down for a bit”.
BP also said that it will be looking to cut or delay capital expenditure “without compromising safety or future growth”. In October, BP told investors such a move could result in reductions of $1bn to $2bn in around $25bn of capital expenditure across the group in 2015. “This will be reviewed further as part of the 2015 plan, recognising the current outlook for oil prices,” the company said.
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