IN THE OIL PATCH

From Bloomberg, oil bankruptcies are up in the quarter to levels last seen in 2009. Employment in the industry has taken the hit. According to Bloomberg, citing the FRBD report, 70,000 jobs disappeared since the industry peaked in October 2014.

Bankruptcies among oil and gas companies have reached quarterly levels last seen in the Great Recession, according to the Federal Reserve Bank of Dallas. At least nine U.S. oil and gas companies that accounted for more than $2 billion in debt have filed for bankruptcy in the fourth quarter, the bank said Wednesday in its energy economic update for the final three months of the year.

 Meanwhile, some believe, citing a Goldman Sachs report earlier this year, that oil will have to fall below $20 a barrel to meaningfully affect supply significantly to change the current glut on the market. If that happens expect more bankruptcies. 

Some corners of the energy world dismissed Goldman Sachs’ prediction earlier this year that crude oil prices might fall below $30 per barrel. But no longer. The investment bank reiterated its belief that oil prices may need to fall to $20 per barrel in order to force a significant volume of supply off the market, and such a scenario is no longer seen as a remote possibility. U.S. oil production has only declined moderately thus far, down about 300,000-500,000 barrels per day since peaking at 9.6 million barrels per day (mb/d) in April 2015. But with so many drillers barely hanging on, everyone is still pumping as much oil as possible in order to keep the lights on, delaying the inevitable adjustment in supply. “This rebalancing is far from achieved,” Goldman concluded this week.

The investment bank says that only prices plummeting to $20 per barrel will force a much greater volume of oil offline, a necessary development to balance oil markets. That would be extremely painful for individual drillers and for the economies (local, state and national) that depend on oil revenues, but without such a severe drop in prices, the oil markets could endure a more damaging prospect – a protracted supply overhang, which could end up being much worse for all those concerned. For now, the world is still producing somewhere around 1.5 mb/d more than it needs. 

Capital markets have shunned some of the most indebted drillers, but access to finance remains open for investment-grade oil drillers. In this context, unless oil prices drop another $10 to $15 per barrel, Goldman says, the necessary contraction may not take place quick enough.

oilprice.com/Energy/Energy-General/Will-Goldman-Be-Right-After-All.