Collapse of the US Oil Industry

Rise of bankruptcies

The decline in crude prices is snowballing into one of the biggest avalanches in the history of corporate America, with 59 oil and gas companies now bankrupt after Midstates Petroleum and Ultra Petroleum filed for creditor protection this week.

The number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecom bust of 2002 and 2003, according to the law firm Haynes & Boone and bankruptcydata.com.

Some oil producers appear to be holding on, hoping the price of crude stabilizes at a higher level.

Until recently, banks had been willing to offer leeway to borrowers in the shale sector, but lately some lenders have tightened their purse strings.

A 60% slide in oil prices since mid-2014 erased as much as $1.02 trillion from the valuations of U.S. energy companies, according to the Dow Jones U.S. Oil and Gas Index, which tracks about 80 stocks.

U.S. Crude Import Surges And Refining Margins Fall

Wall Street Journal yestarday issued an article with information on how the U.S. is importing more foreign oil. U.S. crude imports reached an 11-month high of 1.28 million barrels per day in March. Since the beginning of last year through to last month, Iraqi exports averaged over 240,000 bpd, and Kuwaiti exports averaged 225,000 bpd, as imports from the Middle East rise to 1.8 million bpd in recent months. As refining margins have come under pressure in the last quarter, profits from refineries have plummeted for key fuel producers.

Expectations

Citi Research points out that the oil producers have hedged only 36% of their estimated production for 2016, compared to 50% in the previous years.

The U.S. Energy Information Administration’s (EIA) STEO report expects the supply glut to reduce in the second half of the year; however, if prices remain high, production might increase adding to the supply glut.

OPEC’s production of 32.64 million b/d is very close to its highest level of 32.65 million b/d recorded in January 2016, according to Reuters survey records since 1997.