US Shale Oil Producer Earning Reports Will Be Grim

US Shale Oil Producer Earning Reports Will Be Grim

$USO, $OIL

The fall in Crude Oil prices is putting heavy pressure on indebted US shale Oil production companies.

After falling from over 100 in June of Y 2014  down to 43 bbl at its lowest point in March 2015, WTI Crude Oil prices rebounded with a 38% rise, trading at 60 bbl in May and June.

Many analysts saw a strong bounce coming in the Crude Oil markets, with some predicting supply shortages before the end of the year.

A few companies expounded a renewed sense of confidence, suggesting that they would start drilling again with Crude Oil prices in the 60 bbl range even though cost of production is in the 80 bbl range.

During the year piles of debt had accumulated across the US shale Oil sector.

But drillers, and their financial backers, hoped that price increases would allow them to pay down debt. To stay afloat, drillers issued new debt and equity and funy enough participants bought it.

This new dive in Crude Oil prices is bringing on a new round of debt concerns. Energy-related junk bonds have lost 3% of their value in the last 2 weeks, after WTI Crude Oil fell to about 51, and Brent Crude Oil fell below 57. Bond traders are avoiding high-yield, high-risk debt, and yields have jumped to nearly 10%, a mark indicating default risk.

The markets will get a clear picture as Q-2 earnings roll out this season, as indebted shale Oil companies provide some clues into their pain and struggles.

The overall outlook ahead is gloomier than what will be report in Q-2.

The fast fall in Crude Oil prices over the past year was driven by lackluster demand and rising supplies. This new fall happened because of broad market issues, which comes on top of the ongoing glut, the world is awash in Crude Oil.

Greece has defaulted on its debt and the stage is set for its exit from the euro, with unknown ramifications for the EU. That could weaken oil prices through a stronger dollar, falling EU demand, and a higher perception of risk.

China is the largest Crude Oil importer in the world, and has massive influence over prices. A sharp downturn there could send Crude Oil prices down to 1998 marks at about 20 bbl, thus bringing wide defaults in the shale Oil industry.

OPEC will continue to control the flow of Crude Oil to the markets.

Have a terrific weekend.

Paul Ebeling

HeffX-LTN

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