Chevron said Tuesday it will cut capital spending by 20% to about $16 billion this year as the oil industry reels from the dual shock of plummeting demand amid the coronavirus pandemic and falling prices.

The biggest cut will come in the largest U.S. oil field, the Permian Basin in West Texas and New Mexico, where Chevron plans to reduce its spending by 50% to $2 billion.

CEO Mike Wirth said the demand-sapping coronavirus pandemic and an increase in supply due to the oil-price war between Saudi Arabia and Russia necessitated drastic measures.

“To see these two things happen simultaneously is really unprecedented,” he told The Wall Street Journal. “We can’t control that, but we’re focused on making the moves that will preserve the strength of our company.”

Chevron will also suspend its $5 billion annual stock buyback program but promised to protect its dividend, which it hasn’t cut since the Great Depression. “Our focus is on protecting the dividend, prioritizing capital that drives long-term value, and supporting the balance sheet,” CFO Pierre Breber said in a news release.

As Reuters reports, “The twin supply and demand shocks have pushed crude oil prices to less than $25 per barrel and forced dramatic cost-cutting from oil majors and firms across North America who are competing with cheap Saudi oil.”

Chevron’s cuts are “the first indication from an oil major of how sharply it would pull back spending in the Permian field, output from which has helped the United States become the world’s largest oil producer,” Reuters said.

Refining giant Phillips 66 and Canadian giant Suncor also announced cuts on Tuesday.

According to analytics firm IHS Markit, there could be the largest-ever glut of oil this year if current market dynamics continue, with as much as 10 million barrels a day of oil in excess of demand for the next several months.

Chevron now expects to pump about 125,000 fewer barrels of oil and gas per day in the Permian Basin by the end of this year, down 20% from earlier plans.

(Photo by Justin Sullivan/Getty Images)

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