Of course the preeminent question is whether the Fed will raise interest rates soon. But either way, the U.S. energy sector, already under pressure, is about to feel a whole lot more of it – no matter when the Fed raises rates, or how many times it raises them in 2016.
In fact, no matter how you slice it, a wide swath of American oil and natural gas producers are going to catch it in the neck; bankruptcies, mergers and acquisitions, and of course asset sales (one step ahead of the sheriff) will be the order of the day.
This much chaos and consolidation means one thing: There are big profit opportunities for those who tread carefully…
Cheap Credit Is Life or Death for These Producers
Now, to be sure, much of this upheaval would be happening anyway, thanks to the protracted global competition keeping prices (for now at least) hovering just below the $50 a barrel figure. But a Fed move to raise interest rates – and we will certainly not make it through 2016 without this taking place – will speed up this process.
It’ll be another nail in the coffins of many operators.
Another round of what is misleadingly called “creative destruction” is well underway.
The collision between Fed interest policy and U.S. oil and gas operators remains centered on a matter we have discussed in Oil & Energy Investor on a number of occasions.
Virtually all U.S. publicly traded or privately held oil and gas producers have been cash-poor for some time. This simply means that they have been spending more for new drilling projects than they have been getting in current cash flow.
Creditor Banks Are Reviewing (and Re-Thinking) Their Arrangements
Full article: The Fed Is Set to Slaughter Debt-Laden U.S. Oil Producers (Money Morning)