Oil Continues to Fall, Flirts With $30 a Barrel

The ongoing collapse in the price of oil continues today as the price of a barrel of West Texas Intermediate (WTI) crude continues to trade around $30.50 and traded as low as $30.12 earlier in the day.

The price of Brent crude now trades at around $30.70 a barrel. These levels are the lowest since 2003, and adjusting for inflation, $30 oil today is the equivalent of $22.74 oil 13 years ago, so in real terms we are at extraordinarily low prices.

Analysts at investment banks Morgan Stanley (MS) and Goldman Sachs Group (GS) see the price of oil tumbling to $20 before rebounding, with others pegging the low at $25.

Large Oil Companies Starting to Feel the Pain

Low oil prices are now beginning to hurt large oil companies, and not just impacting smaller drillers.

British Petroleum (BP) announced this morning that it would be laying off 4,000 jobs as it struggles to maintain profitability, and Royal Dutch Shell (RDS.A) laid off 7,500 workers throughout 2015.

Shares of BP are down 22% over the past twelve months and Royal Dutch is down more than 37%.

In fact many of the large oil producers have lost a good amount of their value over the past year: Exxon Mobil (XOM) -18.7%, Chevron (CVX) -24.4%, ConnocoPhillips (COP) -36.8%, and Hess (HES) -42.2%.

At the same time, those smaller drillers and shale oil companies are bleeding money and causing a string of bankruptcies and layoffs across that part of the energy sector. This has been rippling through to their lenders as bond payments default, hurting mainly regional banks at this point, but certainly not good news for large Wall Street firms as well.

Sovereign nations who rely on oil exports as a large part of their economic activity are also being hurt, including Russia, Saudi Arabia, and Venezuela.

The Bottom Line

With no end in sight to the decline in oil prices, large oil companies are beginning to take action by laying off workers in order to maintain profitability.

With the price of a barrel approaching $30, and some analysts predicting a further decline to $25 or even $20, the pain being experienced by the energy sector and by sovereign nations who rely on oil exports may be getting worse.