Posted on 01/12/2016 5:01:43 AM PST by thackney
The oil bust that has cost the United States roughly 70,000 energy jobs has become more severe than any downturn in 45 years, Morgan Stanley said Monday, as crude prices fell a sixth day.
Crude prices tumbled below $32 a barrel on Monday, and over the past 19 months have plunged further and for a longer time than even the 1986 oil bust that deeply bruised the Texas economy. Morgan Stanley says the five major downturns since 1970 no longer can be a credible guide as the oil market enters "uncharted territory."
"No floor in oil prices has been found so far," Morgan Stanley analysts wrote, saying crude prices show no sign of recovering in the first half of this year. The Organization of the Petroleum Exporting Countries continues to pump oil "at will," and the emergence of Iranian crude exports could weigh heavily on the market this year, the investment bank noted.
U.S. crude fell $2.18 to $30.98 a barrel on the New York Mercantile Exchange in morning trading, extending a straight six-day loss in 2016 to 16 percent. Brent, the global benchmark, fell $2.23 to $31.33 on the ICE Futures Europe.
The worst downturn in more than four decades likely will bring Big Oil earnings down by 30 percent to 70 percent this year and cut operating cash flows 10 percent to 15 percent, Morgan Stanley said. Oil and gas spending, the investment bank projected, will fall 34 percent from 2014 to 2017.
Nearly half of the high-yield corporate bonds, known as junk bonds, that U.S. oil producers and oil field service companies took out to fuel the domestic shale oil and gas boom are trading at distressed levels.
And if crude prices stay under $35 a barrel, more than half of the high-yield U.S. oil and gas firms will need to go through a corporate restructuring, said Shaia Hosseinzadeh, head of energy and natural resources at private equity firm WL Ross & Co.
"That doesn't mean they're all going to go bankruptcy but they're going to need some kind of fix," Hosseinzadeh said.
The financial pressure of sub-$50 oil has started to cut into high-cost U.S. shale production but is also expected to bring output outside of OPEC down this year by an estimated 700,000 barrels. That could help set the stage for an oil-price recovery later this year but it also shows the fiscal difficulties of maintaining production while crude falls.
"You're starting to see the Rodney Dangerfield barrels come out of the market," Hosseinzadeh said. "They're the barrels that are non-shale, non-OPEC: these are the barrels that get no respect but they account for a big part of the market. The biggest is going to be Russia; then South America and the rest of the world."
Pennsylvania (Marcellus Shale) will be hard hit. And it was only beginning to recover from "Great Recession..."
Marcellus is nearly all Natural Gas production. But those prices are not good either.
Here is hoping Texas can withstand this bust. I think we are now a bit more economically diversified than in 1986. That aside, where do you see the price bottoming out? I never expected a barrel below $40.
If I could predict the future price of oil, I wouldn't need to work for a living.
Same goes for anyone else making the predictions.
Well that’s true :) It all makes me very glad that I never entered the O&G industry over the years.
It has been good for me. But my side of it lets me move from upstream, midstream and downstream/petrochem fairly easy.
Onward to $20/barrel?
Its cheaper to drive and killing the Russian economy. I love it!
Not just the Russians...
Several in our church have been hit hard by this. One has had to close up shop.
Airlines are going to make big profits this year. Railroads too.
So how did they do this past year? Oil prices have been falling for 18 months.
Remember when Obama told us that high gas prices meant the economy was recovering?
Dow Jones U.S. Railroads Index
http://www.google.com/finance?cid=692078
Been falling rather steady for the past year. Cost of fuel is secondary to the amount of business they get for hauling. Less pipe, coal, frak sand, etc...
- - - - - - - -
Dow Jones U.S. Airlines Index
http://www.google.com/finance?cid=11153237
Also down over the past year, although only slightly.
Texas has been through this many times, and most certainly will survive. It's never easy, but I think that those in the industry have learned to save for the lean periods.
I've got two kids in their mid-20s. I've been on them to put their loose cash into energy funds. They can dollar cost average while the price fluctuates. They'll thank me down the road when the price of oil goes back up, which we know will happen.
My 401k doesn't have that many options. When I retire, hopefully within two years, I'm rolling it into a self-directed IRA. I'd love to be able to buy a few hundred shares of Exxon, and write a few covered calls on the stock.
I can predict with absolute certainty that the price of oil will go back up above $100 a barrel.
I just can’t predict when. Maybe in my lifetime, maybe not.
“Airlines are going to make big profits this year. Railroads too.”
Would it be too much to ask the airlines if they can drop prices a bit? We are charged for everything but going to the bathroom. I get it, prices were high and airlines needed to squeeze every efficiency.
Timing is everything, buying or selling.
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