2. The peril of $40-per-barrel oil
Oil patch bankruptcies are piling up and prices are still in the financial danger zone for a significant amount of producers despite some recovery, new reports show.
Driving the news: A Kansas City Fed survey of companies in their region, released Friday, finds...
- "Over two-thirds of firms reported they could survive more than a year if current revenues were to continue, while around 32% would not survive a year if current revenue levels persist."
- "A majority of firms in our survey applied for and received SBA PPP loans, but low energy prices have hurt profitability."
Why it matters: The finding from the bank — whose region includes the producing states of Oklahoma, Wyoming and Colorado — underscores the sector's peril.
- The Kansas City Fed report came on the heels of the latest tally of industry insolvencies from the law firm Haynes and Boone.
- They found that 18 producers filed for bankruptcy in the second quarter, up from five the prior quarter and the most since Q2 of 2016, when companies were reeling from the last bust.
What's next: More Chapter 11 filings. Prices for WTI, the U.S. benchmark, have been hanging around the $40-per-barrel range for the last month, far higher than the depths of April's collapse but ... they are still a problem.
- It's "not a sufficient clearing price for many heavily leveraged shale producers," Haynes and Boone note in the report.
- "It is reasonable to expect that a substantial number of producers will continue to seek protection from creditors in bankruptcy even if oil prices recover over the next few months."
Where it stands: "Oil edged lower ahead of an OPEC+ meeting this week at which the group may announce plans to start tapering historic production cuts even as the coronavirus surges unabated in many parts of the world," Bloomberg writes.
Threat level: The New York Times reports that the wave of U.S. oil bankruptcies brings a "potential environmental disaster — unprofitable wells that will be abandoned or left untended, even as they continue leaking planet-warming pollutants, and a costly bill for taxpayers to clean it all up."