The global oil glut -- more than a year old -- is showing no signs of abating as the world remains overflowing with crude.
Oil prices dipped below $30 a barrel twice this week as concerns remain about demand and the market remains flush with crude. This was underlined Wednesday when government data showed increases in U.S. oil and gasoline inventories.
"Demand is very weak," said Michael Lynch, president of Strategic Energy and Economic Research Inc. "It's down about 3 percent compared to this time last year, and that's never a good sign."
U.S. oil inventories rose 300,000 barrels last week to 482.6 million barrels and gasoline stockpiles rose 8.4 million barrels, to 240 million barrels, the U.S. Energy Information Administration said Wednesday.
In 2015, retail gasoline demand got a boost as record low prices motivated U.S. consumers to drive more. But demand for driving fuel is typically weak during the first of the year.
National retail gasoline prices averaged $1.95 a gallon Wednesday, down from $2.12 a year ago. In Arkansas, prices average $1.71 a gallon, down from $1.98 a year ago.
West Texas Intermediate crude gained 4 cents to close Wednesday at $30.48 a barrel in New York. Brent crude fell 57 cents, or 1.8 percent, to $30.31 a barrel.
"It's bad news for producers," said said Andrew Lipow, president of Lipow Oil Associates LLC. "What we have seen and we are going to continue to see is a reduction in rig count since it's just uneconomical to drill for oil in the majority of places in North America at $30 oil."
The global oil glut began in 2014 as U.S. shale production rose and OPEC decided not to limit output from members. Oil prices are down about 70 percent since 2014 when oil was trading for more than $100 a barrel.
In response to the price slump, oil producers in 2015 laid off tens of thousands of employees, idled drilling rigs and cut spending. And so far, 2016 looks just as bleak for oil companies.
Part of the reason U.S. production has not shrunk in response to a scale-back in the industry is because some projects that were started several years ago are just now coming online, Lipow said.
On Tuesday, BP PLC of London became the first major oil producer to announce job cuts in 2016.
The company said it will lay off 4,000 employees worldwide in exploration and production over the next two years in response to crude prices, reported The Associated Press.
Murphy Oil Corp. of El Dorado slashed its 2015 budget by 30 percent and its workforce by at least 23 percent. The company plans to release its 2016 spending plans later this month.
Murphy Oil shares fell to $17 during trading Wednesday, the lowest price since 2003. The company's stock finished the day at $17.30 on the New York Stock Exchange.
With ample supply and weak demand, analysts expect prices to stay "lower for longer," with some forecasting that oil will drop to $20 a barrel by the end of the year. Analysts' price forecasts for the year range from $30 a barrel to $60 a barrel.
"Under that scenario, the companies' ability to survive will depend mostly on their balance sheet, which Murphy has in good shape," Luana Siegfried, an analyst with Raymond James, said in an email. "Although the first half of the year should be difficult for the company, we could expect an improvement in the [exploration and production] space as whole by [the] second half."
Companies such as Murphy Oil still will look to cut costs in the oil patch, Lipow said.
"They're going to produce oil from their existing wells, but they are going to be cutting costs and reducing costs in new wells," he said. "While many of them may be able to continue with their operations and stay in business, one thing that can happen is they reduce their dividend payouts to investors."
A Section on 01/14/2016