Wednesday, January 13, 2016

Plunging prices could force a third of U.S. oil firms into bankruptcy.....

Plunging prices could force a third of U.S. oil firms into bankruptcy

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. all 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.

Barclays became the latest bank to slash its outlook, going especially bearish on commodities and offering a rather depressing prognosis for the future of oil markets.

"Recent price declines for major commodities are now greater than in any crisis of the past 30 years and speculative positioning much more negative than it was even in the depths of the financial crisis," the bank's analysts, led by head of commodities research Kevin Norrish, said in a note.

"That suggests that although the price outlook is weaker than it was previously, the road ahead could be a very bumpy one," they said.

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 only 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.

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, said Martijn Rats, an analyst at the bank.

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