SAN FRANCISCO (Reuters) – The global oil glut due to the coronavirus pandemic will likely last well into 2021, Dallas Federal Reserve Bank President Robert Kaplan said on Thursday, and longer, if the economic recovery is weaker than expected.
“We think it will take probably until sometime in the second half of 2021, depending on economic growth, to work off all this excess inventory that we have globally,” Kaplan told Reuters in an interview. “And if we grow more slowly, it will take into 2022.”
The economic ravages of the spread of the coronavirus, travel lockdowns and job losses, have contributed to crude oil prices sinking by 45% since the start of the year, below many shale producers’ cost of production.
U.S. oil and gas producers have broadly curtailed output to what Kaplan expects to be 10.8 million barrels a day by December, about 2 million barrels per day below last year’s level, Kaplan said.
Energy companies on average have slashed 2020 spending by a third, with mass layoffs spreading across the industry. Service provider Halliburton Co earlier this month said it would cut 22% of its headquarters staff, on top of several rounds of dismissals across its U.S. operations.
No. 2 U.S. oil company Chevron Corp. told employees on Wednesday it would eliminate up to 15% of its global workforce in coming months.
Clawing back from that will be hard, Kaplan said. Many smaller firms and those with lots of debt may not survive, he said. After massive layoffs, he added, “How easy is it to bring people back? That was a challenge before and it will probably be a bigger challenge going forward.”
(Reporting by Ann Saphir, additional reporting by Gary McWilliams; Editing by Dan Grebler)