Consumer spending continued to slump, more jobs disappeared, and few signs of economic recovery were visible, business owners told a U.S. Federal Reserve System survey in mid-May.
Restaurants and stores remained mostly closed at the time but many have since begun limited reopenings in several states.
In the Federal Reserve Bank of New York’s jurisdiction, business owners “tended to be less pessimistic about the near-term outlook than in [April’s survey] and those in manufacturing, construction, real estate, and health services expected modest improvement.”
Still, “the outlook remained highly uncertain and most contacts were pessimistic about the potential pace of recovery,” the bank noted.
U.S. Oil Industry Braces for Tidal Wave of Bankruptcies
Almost 40 percent of U.S. oil producers will not survive in business until 2021 if oil prices average $30 a barrel this year, petroleum executives told a survey by the Federal Reserve Bank of Kansas City.
Since the pandemic began, 17 domestic oil drillers have gone bankrupt.
Prices for West Texas Intermediate crude, the U.S. price benchmark, crashed below $20 in March, but have since recovered.
Oil prices rose today to near three-month highs on expectations the Organization of the Petroleum Exporting Countries and others including Russia and the OPEC+ will agree to extend output cuts.
Should the $30 price range hold through 2020, 70 more oil companies will go bust, according to an analysis by consulting firm Rystad Energy. Other analysts have put the number as high as 250.
“We will need” U.S. oil prices “of $40 to $45 per barrel to eliminate the upcoming explosion in the number of financially distressed” domestic oil and gas companies, said Artem Abramov, Rystad’s chief of shale oil research.
Hundreds of small producers invested heavily – usually with borrowed money – in the shale oil boom. Shale wells are expensive to drill and produce abundantly, often for a short time, and typically require prices above $50 a barrel, and often much higher, for producers to profit.
But the shale boom flooded markets with more oil than the world could use, especially as the global economy slowed through much of 2019 and crashed in March. The rising tide of oil and collapse in demand has coincided with drillers’ loans coming due, leaving companies with no cash flow to pay their debts and also remain in business.
Fitch Ratings estimates that domestic oil producers could default on at least $43 billion in bonds and leveraged loans this year.
Since the pandemic began, leading U.S. oil producers have written off more than $38 billion in losses, Rystad estimates, compared to average annual losses of $2.9 billion since 2013.
“The bottom line is that there is going to be a wave of bankruptcies and restructurings” in the U.S. oil industry, said Regina Mayer, KPMG’s head of global energy.
TREND FORECAST: As global economies crawl toward recovery, the oil industry will still be confronting ever-cheaper green energy sources and the growing pressures from environmental advocates linking oil with climate change, etc. Those two forces, combined with a long, slow global economic revival, will hobble oil prices’ rebound.
What will escalate oil price spikes is geopolitical conflict, which we forecast will escalate as economies deteriorate.
