Saudi Arabia’s economic war on America’s oil industry will soon start to show its effect. Declining prices mean less profit. Less profit means operating costs, mainly wages, are unsustainable. Unustainable operating costs mean layoffs and bankruptcies. This leads to collapse of the oil industry.
Three major investment banks — Morgan Stanley, Goldman Sachs Group Inc. and Citigroup Inc. — now expect the price of oil to crash through the $30 threshold and into $20 territory in short order as a result of China’s slowdown, the U.S. dollar’s appreciation and the fact that drillers from Houston to Riyadh won’t quit pumping despite the oil glut.
As many as a third of American oil-and-gas producers could tip toward bankruptcy and restructuring by mid-2017, according to Wolfe Research. Survival, for some, would be possible if oil rebounded to at least $50, according to analysts. The benchmark price of U.S. crude settled at $31.41 a barrel, setting a 12-year low.
More than 30 small companies that collectively owe in excess of $13 billion have already filed for bankruptcy protection so far during this downturn, according to law firm Haynes & Boone.
Full article: Plunging prices could force a third of U.S. oil firms into bankruptcy (MarketWatch)