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.
The Wall Street Journal reports 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. The benchmark price of U.S. crude settled at $31.41 a barrel, setting a 12-year low. As of 9:20 this morning, crude had fallen slightly more to $31.20.
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.
Morgan Stanley issued a report this week describing an environment “worse than 1986” for energy prices and producers, referring to the last big oil bust that lasted for years. The current downturn is now deeper and longer than each of the five oil price crashes since 1970, says Martijn Rats, an analyst at the bank.
Together, North American oil-and-gas producers are losing nearly $2 billion every week at current prices, according to a forthcoming report from the consulting firm AlixPartners, which is set to be published later this week.
“Many are going to have huge problems,” says Kim Brady, a partner and restructuring adviser at consultancy Solic Capital.
American producers are expected to cut their budgets by 51% to $89.6 billion from 2014, a reduction that exceeds the worst years of the 1980s, according to Cowen & Co. There is no relief in sight: The oil glut is expected to continue well into 2017, according to several banks, analysts and industry executives.
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.
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