Crude oil prices are expected to rebound this year, but not before the slump incurs significant damage to the U.S. energy sector, the nation’s no. 2 oil producer said Friday.
Oil giant Chevron discussed the price concerns during a call with analysts after reporting a $588 million loss in the fourth quarter of 2015, the worst performance in almost 13 years, because of plunging oil prices.
Cheap prices made production far less lucrative last year, forcing small, medium and large oil companies to layoff thousands of employees and sell off assets to weather the economic storm.
But there may be a silver lining. Chevron CEO John Watson shared an analysis that showed the market may be moving toward a “balance point” in supply later this year. That will signal that the period of oversupply has ended, and with expectations for demand to rise, the price should too, he said.
“With the significant contraction in global investment caused by low prices the world would see supplies drop off,” Watson said. The analysis done by global energy consultancy Wood Mackenzie “shows that occurring this year, thereby pushing the oil market into better balance.”
Yet, Watson warned: “Until that balance occurs, prices will continue to be constrained, and the financial damage to the energy sector seen in 2015 will continue.”
In the meantime, Chevron is digging in to until the market’s rebalance occurs.
Chevron will continue to sell off assets into 2016 and 2017 to recoup revenue lost from the price drop.
“We are well positioned to benefit when the market does balance and prices begin to rise,” Watson said on the call.
Chevron posted reported a loss of $588 million in the fourth quarter, compared with $3.5 billion a year earlier.
It was the first major oil company to post its fourth-quarter earnings results, which analysts see as a bellwether for what to expect from other companies, notably ConocoPhillips and Exxon Mobil, which will issue earnings reports next week.
