The oil market has been mired in a bear market for the last few years. There's been a number of consequences fo this including declining CAPEX, weaker, more leveraged companies in the space having to file bankruptcy, investors losing interest in the sector, mergers, and acquisitions as assets get distressed and debt loads get more onerous, and now, we are seeing job cuts even among the larger, more well-capitalized companies.

It seems that many oil companies are eager to get out of the oil business. A decade from now, this will either be interpreted as a prescient decision or the ultimate contrarian signal.

BP Reduces Workforce by 10%

BP (BP  ) said that oil demand peaked in 2019 due to the economy continually becoming more digital and increasing efficiency. It also believes that changes in social behavior and government policy to combat change will also have permanent impacts on oil prices. BP is cutting 10,000 jobs, reducing oil production, and increasing green energy investments.

Shell Cuts 9,000 Workers

Like every oil company, Royal Dutch Shell (RDS  ) is preparing for a worst-case scenario in which oil prices remain depressed. It decided to restructure its business by cutting costs including 9,000 employees which will save the company around $2.5 billion annually. It's also increasing its investments in alternative energy and is looking to build up its renewables and power-generation business.

Marathon Cutting 12% of Staff

Marathon Petroleum (MPC  ) announced that it will cut 12% of its staff due to reduced demand stemming from the coronavirus. Gas prices are down 26% from year-ago levels. Demand has significantly improved from the lows in March and April but remains more than 30% less than October 2019. It's created a glut in refining capacity that is leading to big losses for the refiners. These companies tend to have huge, fixed costs, so there's little margin for error.

Oil Price Outlook

All of these developments, including job cuts by major oil companies, could be construed as contrarian indications. However, what's interesting is that oil demand has only declined to 85-90 million barrels per day from a pre-coronavirus level of 100 million barrels per day.

The biggest short-term headwind remains the massive buildups of oil inventories around the world which must be worked through. In a way, this is bullish for the long-term as it leads to reduced investments in future oil production. These job cuts are another indication that future capacity and production will be constrained if the world does return to normal.