Job cuts in the energy industry are going to affect as many 70,000 workers this year following the bear market in oil, Goldman Sachs says.
The investment bank raised the estimate of job losses after major oil-services companies such as Baker Hughes and Halliburton began cutting employees this month.
“We estimate that energy sector employment is likely to decline by 60,000 to70,000 on a year-over-year basis,” Alec Phillips, an analyst on Goldman Sachs’s economics team led by Jan Hatzius, said in a January 23 report obtained by MoneyNews. The cuts are "compared with growth in the sector over the last year of about 30,000."
The oil and gas sector has been one of the few bright spots of job growth since a recession ended in 2009 as the fracking boom spurred major hiring in Texas, North Dakota and Colorado. Those fortunes began to reverse as the price of crude traded in the U.S. plunged 60 percent from a June high of about $107 a barrel to $45 this month.
“A few high-profile oil services companies have announced layoffs that amount to 9 percent of their combined work force,” said Goldman Sachs, which is based in New York. “If the same share of jobs was lost across the energy sector, this would reduce employment by about 60,000, compared with growth last year of about 30,000.”
Capital expenditures in the energy industry will drop by 30 percent this year, according to the bank’s estimates, which may shave 0.1 to 0.2 percentage points off of U.S. economic growth. However, lower oil prices will give consumers more spending power, which will add back 0.5 to 0.6 percentage points to the gains in gross domestic product, Goldman Sachs said.
Energy companies will need to slash costs to maintain healthy balance sheets, according to the Financial Times.
“Companies will need to cut overall costs by $170 billion, or 37 percent, to maintain net debt at last year’s levels,” according to the newspaper, which cited a study by energy consulting firm Wood Mackenzie. The estimate assumes a price of $60 a barrel for internationally traded Brent crude.
“Lower oil prices pose the biggest threat to oil and gas industry earnings and financial solidity since the financial crash of 2008,” warned Wood Mackenzie analysts.
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