Oil Price Drop Darkens Industry Outlook

The U.S. energy industry was licking its wounds when oil recovered to the $60 level in April. Now, with the price of a barrel back in the $40s, the industry mood is dark, with an outlook for lower oil prices well into next year, meaning more shelved projects, deeper cost cuts and tighter-than-expected funding.

Funding is the life blood of U.S. energy supply, as it provides cash flow for an industry that needs to make capital expenditures in order to make money. A cutback in funding could mean less drilling, which is bullish for the price of oil, but negative for companies seeking to generate cash flow.

That makes the price of oil the wild card—and all the more important as fall approaches. October is when bank lenders perform a biannual review of the loans and revolving credit they make available to exploration and production companies, particularly those in the high-yield space. But because of the sharp drop in crude prices and weak outlook, banks are looking more broadly at their exposure across the industry. And for a small universe of the riskiest names, credit lines could be reduced or cutoff.

via CNBC

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza