Oil Plunge Sparks Bankruptcy Concerns

[question everything]

Source: WSJ

Crude-oil prices plunged more than 5% on Monday to trade near $30 a barrel, making the specter of bankruptcy ever more likely for a significant chunk of the U.S. oil industry.

Three major investment banks— Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. —now expect the price of oil to crash through the $30 threshold and into $20 territory in short order as a result of China’s slowdown, the U.S. dollar’s appreciation and the fact that drillers from Houston to Riyadh won’t quit pumping despite the oil glut.

As many as a third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50, according to analysts. More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection so far during this downturn, according to law firm Haynes & Boone.

(snip)

With little likelihood of an oil price rebound in the coming months, the companies that tap shale wells from Texas to North Dakota are splintering into the haves and have-nots.



Read more: http://www.wsj.com/articles/oil-plunge-sparks-bankruptcy-concerns-1452560335

[closeupready]

1. If this puts the kabosh on Saudi exportation of Islamic radicalism,

then that's one of the silver linings to this 'bad' news.

[Renew Deal]

4. The Saudi's are in on it.

They're trying to push the American producers out of business.

[closeupready]

5. Do you remember the Hunt brothers?

They tried something similar, and that didn't work out so well. No, it's not a perfect analogy, but there are parallels.

[EdwardBernays]

6. That'a what friends are for

That explains why were helping them commit war crimes in Yemen... oh wait no, the opposite.

[Yavin4]

15. More so to hurt Iran, and also to kill the Natural Gas market

They can go down to $10 a barrel and be fine. All in all, this is good for the short term, but bad long term as the cost incentive for seeking alternative energy erodes.

[Javaman]

19. they aren't fine...

they posted the first ever deficit this year and have "only" a 5 year store of cash left.

they can carry this on for a while, but not forever.

I think they are employing a little disaster capitalism across the board.

once they knock out a few players, the salad days are over.

[CJCRANE]

7. There's no chance of that. They have $600 billion in foreign reserves

and they're going to start selling off their assets to get an even bigger war chest to ride this out.

[Kelvin Mace]

13. Well, true, but consider that

if things go south in a hurry, those foreign reserves could wind up losing value fast as markets crash.

[Lucky Luciano]

14. They don't want to burn those reserves...it is expensive maintaining their USD peg.

There is talk of them devaluing their currency if things get worse.

China is ripping through their reserves too.

[herding cats]

18. This is an Oil war being waged by the Saudis, actually.

It's fueled in part due to hostilities over Iran and the recent changes in relations with them. The goal is to strike such a serious blow to frackers (and all other expensive forms of oil extraction) in the US, and elsewhere, that they crumble under the pressure from the Saudis.

The end result is it's making it unprofitable for fracking in the US to be a viable option, and it's also now making it unprofitable for Canada's shale industry. Below $35 a barrel it's beginning to impact North Sea oil exploration as well.

Saudis have raised taxes and implemented spending cuts to mitigate the losses on their end, but many poorer OPEC countries are on the brink of economic collapse.

There's a lot of big money players involved in all of this. For right now the US consumer is coming out ahead with lower fuel prices and possibly less destruction of our environment in the short haul, but this won't last forever and when this war of wills is over we'll be back to being useful pawns of the industry again.

[Purveyor]

2. While we in the midwest are enjoying the lows prices now, this will have a major ripple effect

across our economy in due time.

Watched this show before.

[elmac]

9. yes, boom bust cycles are the name of the game for oil producing states

with TX, OK having a rich history of ups and downs. The northern states are kind of newcomers to the boom & bust game, lets hope they socked away some $$$ while the prices were up.

[Helen Borg]

3. Oh, the poor oil company babies will need more subsidies now.

[TexasMommaWithAHat]

8. Those oil companies employ tens of thousands of employees

I don't give a crap about the big corporations and oil execs, but a lot of people will be hurting.

[elmac]

12. Yep, I would rather pay higher gas prices

then seeing good paying job cuts. Though if it were up to me all oil fields would be nationalized with the US getting a big chunk of the profits & letting the drillers get enough to make it profitable. It's still cost-effective down to prices of $10 per barrel in the US but its better to shut down operations at a certain point, save it for future demand.

[kristopher]

16. Solar employs more people than oil or coal.

And there is a huge amount of room to expand employment in both solar and wind.

[Plucketeer]

10. Time to turn the little oil companies

into collectives. Give THEM the subsidies (with trigger points) and stop the subsidies to the behemoth oil pumpers.

[rosesaylavee]

11. They have known about this for at least 10 years

This is peak oil. We need to be working out how we are going to transition from Oil to other energies like 5 years ago.

They marched right up to the edge of the cliff and no doubt are expecting bail outs.

And no doubt they expect taxpayers to pay to close down their refineries one by one too.

Ridiculous.

[kristopher]

17. I don't think you know what 'peak oil' is...

..because this is exactly the opposite.

Peak oil - Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Peak_oil
Wikipedia
Peak oil, an event based on M. King Hubbert's theory, is the point in time when the maximum rate of extraction of petroleum is reached, after which it is expected to enter terminal decline. Peak oil theory is based on the observed rise, peak, fall, and depletion of aggregate production rate in oil fields over time.

Note the use of "depletion" as part of the concept. We have a glut in a commodity that is becoming obsolete.

[apnu]

20. So then is this glut of oil speeding us up to Peak Oil?

If so, seems dangerously short sighted for oil producers to do so. Once there's no oil left in the sand, the whole world won't give a hoot about the Middle East and the place will become a wasteland.

[kristopher]

21. What part of "obsolete commodity" doesn't make sense to you? nt

[Bernin]

22. There is far too

much oil in the world.
Russia has much more than SA.
You need not worry about "peak oil"

[rosesaylavee]

23. Yes. That is right.

Peak oil has been reached, we are at the end of the Oil era. The oil companies have known this would happen. We are now extracting oil from very expensive locations - tarsands, ocean rigs, etc. And it costs more to extract this way and there is less profit in it.

We are at the end, and who has the plan to move forward? These companies are NOT in denial. They are very smart capitalists who will milk the system until they fail and they will go bankrupt with us holding the bag.

I wasn't clear. I agree.

[NickB79]

24. Obsolete implies something better is replacing it. What would that be?

The percentage of vehicles utilizing any non-petroleum-based fuels such as electric or hydrogen is extremely small at this point, far too small to account for the collapse of oil prices today.

Similarly, oil is still the feedstock for almost all plastics production around the world, with no economical plastics in the pipeline for decades to come.

Also, if you care, there is a flip side to Peak Oil that many have not considered up to this point: http://www.theenergycollective.com/gail-tverberg/2277283/low-oil-prices-why-worry

Most people believe that low oil prices are good for the United States, since the discretionary income of consumers will rise. There is the added benefit that Peak Oil must be far off in the distance, since “Peak Oilers” talked about high oil prices. Thus, low oil prices are viewed as an all around benefit.

In fact, nothing could be further from the truth. The Peak Oil story we have been told is wrong. The collapse in oil production comes from oil prices that are too low, not too high. If oil prices or prices of other commodities are too low, production will slow and eventually stop. Growth in the world economy will slow, lowering inflation rates as well as economic growth rates. We encountered this kind of the problem in the 1930s. We seem to be headed in the same direction today. Figure 1, used by Janet Yellen in her September 24 speech, shows a slowing inflation rate for Personal Consumption Expenditures (PCE), thanks to lower energy prices, lower relative import prices, and general “slack” in the economy.