The wave of cost-cutting decisions in the oil industry continues, with major oil companies responding to low oil prices that are stuck in the 20-30 USD per barrel range.

The Anglo-Dutch Royal Dutch Shell said on Monday it would cut CAPEX by 20%, or about 5 billion USD, and also halt its share buyback plan for the year.

French oil giant Total SA and Norway’s Equinor have announced similar steps.

US industry leaders ExxonMobil and Chevron are also expected to slash budgets, with Exxon under particular pressure to do so. Goldman Sachs estimates Chevron needs an oil price of 50 USD per barrel to cover its costs and pay its dividend. ExxonMobil, on the other hand, needs oil to trade at 70 USD per barrel.

Oil giants, in general, are comparatively more isolated from the downturn than small and medium shale drilling companies. But this time it seems they are not protected by the turmoil in the oil markets.

We are in the midst of a historic meltdown – flooding the markets with cheap oil and very, very low demand. Estimates vary, but oil consumption can be reduced by 10 million barrels per day or even more. No matter how cheap oil is, if people do not drive, fly or consume, there will be no increase in demand and prices will remain low.

On Monday, Exxon announced it was cutting production at its second-largest Baton Rouge refinery in the US, as weak demand had already filled the warehouses. Exxon also removed 1,800 subcontractors that extract oil from the company’s facilities.

The first round of spending cuts by oil industry representatives is already visible, but a second stage is beginning, according to a report by Goldman Sachs.

“We see US oil production shrink by almost 1.4 million barrels per day in the second quarter based on reduced drilling, with companies’ covered capital expenditures going down by 35% in 2020”, Goldman Sachs wrote in a note.

However, budget revisions have not been completed. The decline in costs, drilling and production can be exacerbated as the shrinking capital costs become more pronounced.

The initial round of layoffs puts costs at about 45 percent below 2019 levels, Goldman reports.

“However, the decline will be far more dramatic than these initial cuts, and we emphasize that these messages are targeting more restrictions, better hedged and capitalized operators”, the bank added. “Most likely, capital expenditures in the US will shrink by more than 65%, leaving WTI at 20-30 UD per barrel”, Goldman Sachs concludes.

JBC Energy said full repositories would eventually lead to a new price slump, which would push companies further to curb production. In such an environment, it’s possible that Brent’s price could drop to 10 USD per barrel, something that has not happened since 1998, JBC added.