Monday, February 29, 2016
Since June 2014 when global oil prices began their downward spiral, the price of oil has collapsed more than 70%.
The once resilient U.S. energy industry is showing intense signs of strain. ExxonMobil (XOM), the biggest player in the space, may lose its pristine triple-A rating as its profits have swooned.
Meanwhile, some smaller exploration and production companies have seen their stock prices collapse as investors question their viability. In a sign of the pressure, the risk premium investors demand to hold the debt of junk-rated U.S. energy companies climbed to a record high earlier this month -- even surpassing levels hit during the financial crisis, Bank of America Merrill Lynch (BAC) data show.
The U.S. shale revolution that catapulted America high on the list of the world's biggest oil producers helped inflate a global glut of supply that only worsened as the Organization of the Petroleum Exporting Countries (OPEC) kept spigots open in a bid to regain market share.
With West Texas Intermediate, the U.S. oil benchmark, hovering near the $30-a-barrel mark, and conditions worsening in the shale space, has OPEC's bet finally paid off?
Suzanne Minter, manager of oil and gas consulting at Platts Bentek products, said she doesn’t see OPEC cutting production. She said the global oil market is at a tipping point right now – having fallen so far so fast from all-time highs – that to give in and cave to U.S. producers would be seen a huge concession for the cartel.
“They are so close to making North American producers roll over. They got us exactly where they want us,” Minter said.
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