Falling Oil Prices Could Spell Bankruptcy for Major Oil Companies

graph-36929_1280People across the country are undoubtedly enjoying the plummeting gas prices. However, the oil industry is not sharing their delight: crude-oil prices decreased over 5% this week.

Currently trading around $30 a barrel, oil prices this low could spell trouble for significant players in the U.S. oil industry.

One word is on the lips of many major oil companies: bankruptcy. According to The Wall Street Journal, major investment bankers such as Morgan Stanley and Goldman Sachs predict that oil prices will continue to drop as low as near $20 a barrel.

The falling prices have been attributed to a few different factors, such as stunted economic growth in China. Fewer imports are coming over as the American dollar appreciates.

Wolfe research states that as many as a third of American oil and gas producers might have to file for bankruptcy to cover the losses these low crude oil prices are causing. Prices are the lowest they have been in 12 years.

Although more than 1.1 million U.S. households file for bankruptcy each year, rarely do we see a case on this scale that impacts companies of this magnitude. More than 30 smaller oil companies have already filed for bankruptcy protection in response to owing more than $13 billion collectively.

The WSJ article states that North American oil and gas companies are hemorrhaging money, losing nearly $2 billion a week at current gas prices. American oil production companies must cut their budgets by 51% to stay afloat.

Experts and analysts alike say this oil glut will continue well into 2017. There is little likelihood of a gas price increase in the coming months, which further points to the possibility of bankruptcy for many companies.

Morgan Stanley issued a report this week calling this current situation “worse than 1986” for energy prices and producers. This is in reference to the last major oil bust that lasted for years.

The current downturn is steeper, however, and is expected to last longer than any of the previous oil gluts and price crashes since 1970.

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