I was having a farewell lunch with a colleague recently when I learnt that his friend who used to work in an oil giant was retrenched many months back and has not yet found a job. He was earning far too high previously and new companies either could not pay or worried that he would suddenly leave as soon as oil prices recover. Sad but quite true. However, oil prices are not likely to recover anytime soon because the power of oil producers have been halved. US shale oil producers are now as powerful as the Middle Eastern nations. This is partly the reason why oil cut decisions or tensions in the Middle East today has not caused the oil prices to go haywire.
I just read in The Star that another oil giant announced that it will cut more. By the end of 2016, Royal Dutch Shell will cut a total of 12,500 including 2,200 announced on Wednesday. The main reason? Weak oil prices. Out of the 2,200 job losses, 475 will be from its upstream UK and Ireland businesses. Shell its cutting its expenditure swell as selling US$30 billion worth of assets to cover for the shortfall in earnings. Shell however said that as they continue to hire in IT and graduate level, total net job losses in 2016 would be lower than 5,000. I seriously do not think those earning huge salaries in their and gas industry are very happy currently.
Personally, I do believe everyone in the world should adjust to the low oil price regime. The reason is very simple. The cost of oil production from the traditional producers are extremely low and with cost cuttings especially that of manpower, it will remain low. Meanwhile cost efficiencies from shale oil producers meant that many continue to produce even at current oil prices. In other words, no one is stopping its productions and in fact increasing it since the current oil price is above their costs! Do google ‘shale oil producers’ to read more. Oh yeah, for those staffs who were retrenched, they would most probably be willing to accept lower pay and this meant that the costs of production drops even further! My colleague would argue that along as a war happens in the oil producing countries, the oil prices will spike. I hope I am right because wars benefit no one, really. Happy understanding.
written on 25 May 2016
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