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International Oil Prices Continue to Fall
Since the beginning of this year, international oil prices have been falling. In mid-January, they once fell below the US$30/barrel mark. Although they have rebounded in recent days, they are still hovering around US$30/barrel. JPMorgan Chase Bank in the United States followed Goldman Sachs in predicting that international oil prices are likely to fall to US$20 per barrel. Standard Chartered Bank of the United Kingdom believes that it is very possible for oil prices to fall to US$10 per barrel.A series of bad news has brought unprecedented pressure to the U.S. energy industry. Large companies are trying their best to support it, while small and medium-sized companies have either reduced production or gone bankrupt. The huge profits they made two years ago are no longer good, and there are only "hard times" ahead.
In June 2014, the international oil price was still at a high of US$115 per barrel. At that time, the oil companies were so bossy. But then the price of oil began to plummet, and it dropped lower and lower. By early 2015, oil prices had halved to $55 per barrel, and many oil companies were still struggling to hold on. Who would have thought that the drop in oil prices seemed to be "addictive". One year later, it exceeded US$40/barrel and once again fell below US$30/barrel. According to a survey, 42 oil drilling companies in the United States filed for bankruptcy in 2015. This year things are looking even worse. Experts see similarities between the current crisis and the 1986 oil crisis, when 27% of oil drilling companies went bankrupt. The latest report from American Wolf Research Company predicts that one-third of U.S. oil and gas companies will go bankrupt by mid-2017.
Such a severe situation is of course inseparable from the international oil supply and demand situation, the world economic situation and the geopolitical situation.
In the past two years, the primary reason for the decline in oil prices has been oversupply. A shale revolution has enabled the United States to take off its hat as an oil importer and transform itself into the world's largest oil and gas producer. However, some Organization of the Petroleum Exporting Countries (OPEC) countries, led by Saudi Arabia, are not convinced and are determined to "fight to the death" with U.S. shale oil and refuse to cut production when oil prices fall. Non-OPEC oil-producing countries such as Russia are unable to reduce production due to economic difficulties. As a result, a rare oil "price war" emerged in history.
Secondly, the world economy is not strong. The economies of the European Union and Japan are very weak; some emerging economies have fallen into recession and some have slowed growth; the U.S. economy is recovering, but it is also very unstable. In this environment, the growth of oil demand will naturally be "blown away by the rain and the wind". In addition, the United States lifted its 40-year oil export ban in December last year, which means that the United States, which produces 9.2 million barrels of oil per day, may deliver products to the international market at any time. International sanctions against Iran were lifted a few days ago, and Iran can immediately increase its daily crude oil production by 500,000 barrels. These are all important factors driving down international oil prices.
The sharp fall in oil prices has directly hit the U.S. shale oil industry. In the first week of trading in 2016, international oil prices hit an 11-year low, plummeting by more than 10%. The number of shale oil drilling platforms operating in the United States has dropped sharply, and some production areas even have no platforms operating at all. According to data released by the U.S. Energy Information Administration, shale oil production may have declined for the seventh consecutive month in February, falling by 116,000 barrels from January to 4.8 million barrels per day.
Looking at the actual situation of U.S. shale oil companies, the three major shale oil companies Hess Corp, Continental Resources and Noble Energy have recently announced that they will reduce investment and reduce production scale this year. . Continental Resources, North Dakota's second-largest oil producer, cut its capital budget by 66% in 2016 and plans to spend $920 million, down from $2.7 billion in 2015. New York State's Hines plans to spend $2.4 billion in 2016, down 40% from $4 billion in 2015. Nobel Energy plans to reduce spending by 50% in 2016.
This is true for large companies, but it is even more difficult for small and medium-sized companies to survive. Industry experts estimate that U.S. shale oil will be unprofitable when oil prices fall below $80 per barrel. However, because the shale oil industry has great flexibility, it not only uses cutting-edge technology to reduce costs, but also implements advanced management systems to improve efficiency. Under what oil price conditions the shale oil industry can survive, the values have been repeatedly corrected. , from $80 to $70, $60, and then below $50 or even $40. Now that oil prices have dropped to US$30, it is indeed a question of how much breathing room shale oil companies still have! According to reports, when oil prices were as low as $30 per barrel, U.S. oil and gas producers lost a total of $2 billion a week.
The fall in oil prices has suppressed not only the shale oil industry, but also the investors who "supply" the shale oil industry. Over the past six years, the U.S. shale oil industry has attracted an estimated $350 billion in capital, most of which was raised in corporate bonds. Once in demand, corporate bonds in the oil and gas industry are now rated as "junk bonds." It is estimated that the default rate of oil bonds will double in 2016. Since the vast majority of investors in the oil industry are private investment companies, although national and regional banks are involved, the business volume is not large. For example, Bank of America's energy business has loans of US$21 billion, accounting for about 2% of its total loans, so the drop in oil prices will not have a huge impact. But the same is not true for small companies and individuals who invest in energy companies. Most of them will go bankrupt.
It is worth noting that while the shale oil and gas industry is struggling to survive, clean energy is booming. The cost of clean energy technology has dropped significantly, thus promoting the further growth of clean energy. According to a report from the U.S. Department of Energy, U.S. solar technology has covered large public projects and small rooftop projects across the United States, and distributed photovoltaic power generation systems have been deployed across the country. The U.S. Department of Energy will continue to invest in solar research and development to reduce market barriers and make it more cost-effective. From 2008 to 2014, thanks to the early investment of the U.S. Department of Energy, the installation of onshore wind power in the United States accounted for 31% of the new power generation capacity in the United States. As of 2014, more than 8 GW (1 GW = 1,000 MW) of distributed solar power generation equipment had been installed in the United States; more than 65,000 MW of utility-grade wind power equipment had been deployed in 39 states across the United States. In 2014, a total of 78 million light-emitting diode (LED) bulbs were installed in the United States, and 300,000 electric vehicles were sold, equivalent to a reduction of nearly 150,000 gasoline-powered vehicles.
At present, oil prices will remain low for quite some time. Fedal Gait, a senior oil and gas analyst at Oppenheimer Holdings in the United States, believes that the normal level of oil prices may be 50% to 100% higher than it is now. Oil prices will eventually stabilize around $60, but that will be at least two years away. Within two years, half of U.S. shale oil producers will go bankrupt. But from another perspective, the drop in oil prices is beneficial to ordinary people, boosting consumption and promoting economic development; the drop in oil prices is also a baptism, and shale oil companies that survive through the waves must be "real gold" companies. This is exactly what the Western proverb says: There is always a glimmer of light on the edge of a dark cloud.
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