After U.S. crude oil fell into negative territory yesterday, one expert has warned that the oil industry crisis could force many companies to stop operating.
U.S. oil companies have different production costs and different debt burdens, and the most vulnerable are those that have borrowed heavily in anticipation of higher prices, former FERC commissioner and current managing director of Berkeley Research Group, Branko Terzic, said as quoted by Sputnik.
"There are 1,000 producers, and some of these are small producers where the well just runs on its own and it produces, and it probably won't be shut down because the costs are very low," Terzic said, adding "WTI is low because it is land blocked and has to go through pipelines. Secondly, storages are probably full, and thirdly, the country is in shutdown. There is just no market for oil. The refineries don't need it. I haven't used my automobile in a week, and I used to drive every day."
Indeed, the crisis in demand has been recognized widely as the main reason for the oil price crash that pushed WTI to unprecedented levels: at the time of writing, although back into positive territory, WTI was trading at just $1.40 per barrel. Brent crude was trading at $25.36 a barrel.
Warnings about a rise in bankruptcies have been coming in from energy experts for months. Earlier this week, Rystad Energy warned that as many as 533 U.S. oil companies go bankrupt if oil stays at around $20 a barrel.
"$30 is already quite bad, but once you get to $20 or even $10, it's a complete nightmare," said Rystad's head of shale research, Artem Abramov, as quoted by CNN. He added, "At $10, almost every US E&P company that has debt will have to file Chapter 11 or consider strategic opportunities."
By Irina Slav for Oilprice.com
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