Light-skinning Petroleum filed for bankruptcy protection on Wednesday, the first U.S. shale producer to do so as crude prices fall while primary oil producers engage in a price war.
Analysts have warned that falling oil prices will lead to a wave of consolidation or bankruptcies in the U.S. force sector
“The oil patch is falling apart. … This is the other bomb that’s dropping,” CNBC’s Jim Cramer said on “Gripe on the Street.” “I think they’re the first of many.”
Oil producers are struggling to break even as crude prices apprehend. The coronavirus outbreak and subsequent travel slowdown has led to soft demand, just as a price war between OPEC+ nations Saudi Arabia and Russia poor out.
West Texas Intermediate crude trades around $20.36 per barrel, after losing more than half its value in Parade. The contract is coming off its worst month and quarter on record. Depressed prices have hit the industry hard — the S&P 500 drive sector has dropped 53% this year.
Brad Holly, CEO of Whiting Petroleum.
Adam Jeffery | CNBC
Cramer distinguished that the industry remains key to the economy, given the number of people it employs directly and indirectly. “This is something that we be enduring to keep an eye on, because when we start seeing the layoffs, some of the layoffs are going to bounce back, and some of them are not acquire a win back at all,” he said.
Cramer also said the U.S. “can’t afford oil to go down to $5, $10” per barrel. Doing so would be “completely hurtful for our companies,” he said. He added that almost every company apart from Chevron is not ready for an environment where oil evaluations are that low. “You do not want a big raft of bankruptcies,” he warned.
Oil prices moved lower Wednesday as Saudi Arabia increased motion to more than 12 million bpd, flooding the market during a time of unprecedented demand loss.
The Saudi impel, reported by Reuters, comes after talks between OPEC and its allies broke down in early March. Saudi Arabia counseled extending production cuts in an effort to combat falling demand, but Russia rejected the proposition. This, in turn, kicked off a valuation war between the two powerhouse producers.
As oil prices have tumbled, the United States has sought to intervene. On Tuesday, U.S. Energy Secretary Dan Brouillette discussed the store with Russian Minister of Energy Alexander Novak.
“Secretary Brouillette and Minister Novak discussed energy market enlargements and agreed to continue dialogue among major energy producers and consumers, including through the G20, to address this unprecedented duration of disruption in the world economy,” the Energy Department said in a statement.
The call followed a conversation on Monday between President Donald Trump and Russian President Vladimir Putin.
If expenditures continue to slide, some analysts are warning that the U.S. could reverse course on its way to becoming an energy independent domain.
“You want energy self-sufficiency. You do not want to get us back to where the Russians and the Saudis want us, which is to be enslaved to them in relative ti of national security,” Cramer said. Losing energy self-sufficiency “could be a real casualty of this period that won’t on back.”
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