Commodities Weekly #3

Welcome back to the third edition of Commodities Weekly with Capital and Conflict.

Layoffs And Lost CapEx; The Crisis Faced by Big Oil

In more recent times, many of the world’s largest and most influential oil and gas companies have been cutting jobs and slowing down on investment spending. The United States’ third largest oil producer, ConocoPhillips, announced earlier this month of restructuring plans that involves reducing their workforce count by 20-25%. Giants like BP and Chevron have already cut staff from its workforce which signifies the growing systemic risk that is occurring from falling crude oil prices in 2025.

This wave of heavy job cuts is not confined to a single nation, rather it’s a growing problem globally, where it was announced back in June that Malaysia’s state energy firm, Petronas, would be slashing 10% of its workforce, affecting over 5,000 jobs. This was also in turn of facing the harsh reality of falling crude oil prices “as it navigates a polycrisis”.

Leading the headlines as mentioned before, ConocoPhillips’ plans roughly affect 3,250 if plans continue until the end of the year. Chevron have already shed close to 8,000 jobs since February where chief executive Mike Wirth said, “The way we protect the most jobs for the most people is by remaining competitive,” said last month. “We have to take control of our own future.”

Both U.S. producers are undergoing major restructurings in the wake of their recent acquisitions, bringing in management consultants to guide the job cuts and streamline operations.

The main reason behind this wave of layoffs is the sharp drop in oil prices. Brent crude has slipped from nearly $80 a barrel earlier this year to just under $67 today. West Texas Intermediate, the U.S. benchmark, is trading around $62. For many producers, prices need to be closer to $70–75 to make drilling new wells worthwhile. At today’s levels, margins are too thin to justify spending on new projects.

OPEC+ has also played a large involvement in helping push prices further down. After years of restraining production to artificially keep prices elevated, the group of countries shifted course and started pumping more oil to win back market share. This increase in supply has built up inventories and raised concerns of a glut, adding further downward pressure on prices.

Costs are rising while prices are falling. Tariffs on imported steel and equipment imposed by U.S. President Donald Trump earlier this year have made drilling more expensive.

Inflation in materials and services has lifted breakeven costs across the industry. Debt levels have also climbed back to where they were before the 2022 oil boom, leaving producers with larger interest bills just as cash f lows are declining.

In response, companies are moving quickly to protect their finances. As previously discussed, these large-scale layoff operations come alongside major cuts to capital spending.

Reuters reported that 22 publicly traded U.S. producers have lowered their 2025 budgets by a combined $2 billion. The U.S. rig count has dropped by nearly 70 rigs this year, pointing to a sharp slowdown in drilling activity.

Executives have acknowledged that falling prices leave them little choice. Bryan Sheffield, founder of Formentera Partners, said earlier this year that if oil fell into the low $60s, public independents would need to cut budgets and rigs. That is now exactly what is happening, with many of the job losses concentrated in drilling hubs such as the Permian Basin.

The slowdown is not just about job cuts. Spending plans are being scaled back across the board. Reuters reported that 22 publicly traded U.S. producers have trimmed their 2025 capital budgets by roughly $2 billion. This marks the first annual fall in global oil and gas investment since 2020, with Wood Mackenzie estimating a 4.3% drop in spending to $341.9 billion.

Lower capital expenditure means fewer drilling projects and slower production growth. The U.S. Energy Information Administration expects American output to fall this year for the first time since 2021. This has been a signal to the end of the shale boom’s rapid expansion phase in recent years.

The wider effects of these cuts could be significant as oil-producing regions, such as Texas and North Dakota, depend heavily on drilling jobs and tax revenues, so thousands of layoffs will hit local economies hard across states. When drilling slows, local businesses like also feel it too.

Lower production could also increase U.S. reliance on imports over time, which could be a big political talking point.

The big question is whether these cuts go too far. If companies slow down too much, they might struggle to ramp production back up later and if demand for oil rises again, there could be a supply shortage and prices could shoot up quickly.

Going forward, the industry should be looking to be more careful about its large and impactful decisions and operational decisions.

Anglo Tek's Centre Stage

Introduction:

Two of the world's top ten copper producers have merged to form Anglo-Tek. This deal was announced on September 9th and, pending regulatory reviews and shareholder approval, could be finalised within 12-18 months. It is likely to be among the top 5 and could eventually break into the top 3 copper producers in the world (depending on future ventures). The merger reinforces the prevailing sentiment that the long-term outlook for copper remains strongly bullish. This article outlines the key aspects of the deal, its underlying causes, and the potential long-term implications.

What has happened?

Anglo Tek is expected to produce an estimated 1.2 million tonnes once the deal is finalised. Anglo’s shareholders will own 62.4% of the new entity, which is likely to capture approximately 5-7% of the global market share (depending on sources). Anglo’s share prices rose over 7% and Tek’s surged a whopping 22%.

Benefits for Anglo and Tek:

Anglo has been divesting its coal, nickel, and other smaller metals operations. The merger consolidates the shift away from these toward copper, as they now co-own Tek’s four copper mines (which accounted for approximately 65% of its overall profit). The deal has amplified copper as Anglo’s flagship commodity. Both former companies could now benefit from economies of scale, including shared infrastructure and lower operational costs, and increase their efficiency and overall copper output significantly in the future. This is the most notable of the increasing number of mergers in the mining industry in the last two years

Anglo had been under pressure from shareholders (especially the hedge fund Elliott Management), institutional investors such as UK pension funds, analysts, and banks like JP Morgan, to replace risky and underperforming assets like fossil fuels with a more forward-facing asset, like copper. Anglo was previously losing ground to rivals like BHP and Rio Tinto due to its scattered portfolio (now streamlined towards copper) and copper production (now almost doubled). Anglo Tek is attractive to investors due to its focus on copper, which has a tight global supply and strong demand growth, resulting in healthier long-term margins compared to Anglo’s previous mix of volatile commodities (diamonds, coal, PGMs)

Demand side explanations:

The major reason for this is the forecast for the long-term need for copper. There has been a global momentum toward adopting renewable energy technologies. Copper plays a crucial role in this shift as it is an integral part of renewable energy construction and maintenance.

The massive news on September 10th of the EU’s plan to create cross-country energy highways signals a commitment to renewable energies, as the plan would assist the expansion and connection of less cost-efficient wind, solar, and thermal energy sources. The infrastructure itself to connect generators would require hundreds of thousands of tonnes of copper. Furthermore, Oracle signed a $300 billion deal with OpenAI regarding cloud computing power, indicating a potential future demand for data centers, which require vast amounts of copper. This week's events are evidence of a wider push to electrify transport and heating (Electric vehicles, wind farms, solar PVs) and also expand and improve digital infrastructure (Data centres, semiconductor fabs, telecommunications networks). Building all of these is a very copper-intensive process.

Supply side explanations:

Does this merger signal a concern for future supply constraints or reflect an early move to meet a large future demand? Copper ore grades (which reflect concentration) have fallen from 1% in the early 2000s to 0.6-0.7% today, according to ICSG, leading to increased smelting (separating) costs and overall production costs. Furthermore, copper discoveries have been declining since 2012 (S&P Global report), and new projects take a considerable amount of time to form; ICMM data show that projects initiated in 2015-2016 took almost a decade to materialise due to exploration, feasibility studies, permitting, financing, and construction. All of these suggest that this week's merger aims to seize control in a market where supply may struggle to meet future demand.

What this signals for the future:

While the merger itself does not increase the supply of copper in the market, it changes the market dynamics by concentrating the market share of the top 5 copper producers. Anglo Tek has more autonomy (than both companies’ previously separated entities) over its production pace, which should translate into more pricing discipline. While the copper market remains competitive, the move has concentrated market share among top producers, potentially paving the way in the distant future for a “soft OPEC” dynamic (with or without formal coordination), whereby a few producers have a large strategic control over production and pricing. This is especially made more likely if the demand surges are underestimated and if more mining companies follow suit (as merging has been the trend in the last couple of years).

A modest upward movement in daily copper prices was evident this week. A continued positive outlook on market stability, driven by the diminishing volatility in the copper supply, could lead to increased upward pressure on copper prices in the long term. Copper demand is relatively price-inelastic as it is not an easily substituted commodity. Therefore, the inability to substitute, combined with stabilising and subsequent confidence (resulting from a larger, more financially resilient player) in the copper market, could lead to sustained price increases and increasing investment.