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Global oil industry's retrenchment tops a staggering $1 trillion

The collapse in crude prices is turning into a trillion-dollar retrenchment for the global oil industry.

That's the latest tally from energy researchers at Wood MacKenzie, which tracks capital investment by oil and gas producers around the world.

"Virtually every oil-producing country has seen some form of capex cuts" since oil prices collapsed in late 2014, according to analyst Malcolm Dickson.

The deepest cuts since that time have come in the United States, where the overall forecast for capital investment this year and next in the lower 48 states has been cut in half, falling by $125 billion, he said in a recent note to clients. That's mostly the result of a sharp pullback in drilling, with rig counts now at about half last year's levels.

On the brighter side, costs have also fallen because the sharp cuts in drilling. For U.S. producers of so-called "unconventional" oil and gas — meaning those that involve fracking — costs in 2015 fell by 25 percent last year, and are expected to drop another 10 percent this year, according to Wood Mackenzie's models.

Spending and investment in the U.S. oil patch are expected to continue to drop this year as more companies struggle to turn a profit with oil prices stuck at less than half the level seen when many projects were started.

Last year, many oil producers were able to cushion the blow of falling prices by using hedged in the futures markets. But with oil markets now entering the third year since the global price crash, those hedges are expiring, leaving producers even more exposed to profit pressures.

It's not at all clear how long oil prices will remain at current levels, nor when or how far they will recover.

Lower prices and spending cuts have naturally trimmed worldwide production. Wood Mackenzie forecasts that global crude oil output thorough the rest of the decade will be some seven billion barrels lower than was expected before the oil price drop, or about 3 percent lower this year and 4 percent lower next year.

In a separate report, analysts at IHS recently cut their price forecast, noting that U.S. production has held up better than expected despite the drilling cuts. They also cited continued high OPEC production and weakening growth in global demand.

IHS expects U.S. oil and gas producers to continue to cut investment by another 35 percent this year, with those cuts bottoming later this year. But any recovery will be "long and drawn out," they said, with spending by the end of the decade still 28 percent below the 2014 peak.

Elsewhere in North America, IHS expects that spending by Canadian oil sands producers has been supported by ongoing projects, but those are seen reaching completion by the end of the decade.

Worldwide, more than $1 trillion has been cut from investment in oil and gas development projects planned through the rest of the decade, according Wood Mackenzie's research.

Russia has seen a big dropoff — 40 percent over the next two years in dollar terms, with much of that fall coming from the ruble's slide against the dollar. With its currency devalued, Russia now relies even more heavily on oil and gas production in order to produce revenues. In March, Russian oil output hit a post-Soviet high of nearly 11 million barrels a day

Major Middle East producers are also pumping hard to protect their market share. As a result, cuts in spending and investment have been less severe in that part of the world. Saudi Arabia, for example, plans no investment cuts this year or next, according to Wood MacKenzie.