IN MONEY U.S. oil poised for rebound
Number of jobs, gas prices may increase
American oil producers, battered by rock-bottom prices in 2016, could be poised for a big comeback and the prospect of creating new jobs for oilfield workers.
The downside? Gasoline prices could head higher for consumers.
After the Organization of the Petroleum Exporting Countries and several non- OPEC nations agreed to slash production starting in January, oil prices have spiked, fueling hopes among oil producers that the U.S.’ temporarily downtrodden energy sector will shed 2016’s blues in the new year.
After a record-setting number of bankruptcies for North American energy exploration and production companies in 2016, the sector is poised to reap the benefits of oil’s rebound and a massive increase in productivity powered by technological improvements.
In response to the OPEC action, U.S. shale oil producers are likely to boost production by anywhere from 600,000 barrels per day at a price of $55 to 1.1 million barrels per day at a price of $60, according to Macquarie analysts Vikas Dwivedi and Walt Chancellor. On Thursday, the benchmark U.S. crude was trading midday at $53.71 a barrel, down 0.65%.
“There’s ample room for producers to expand in response to higher prices,” said Rob Haworth, investment strategist and commodities expert at U.S. Bank Wealth Management. “That’s the hard part here for OPEC — they’re trying to get the market into balance, but the wild card they’ve created is a more vibrant shale industry here in the U.S.”
This year has been wickedly difficult for North American oil exploration companies, what’s typically called the “upstream” end of the oil business, which bled profusely as oil tumbled below $27 per barrel in February, having lost nearly half of its value in about four months.
The commodity’s steep descent triggered thousands of layoffs as about 50 of those North American companies filed for bankruptcy in the first half of 2016, according to the Haynes & Boone Oil Patch Bankruptcy Monitor report.
But that pace slowed to a trickle in the second half of 2016, with only 18 companies filing for bankruptcy. And in the first two weeks of December, only one company did so, according to Haynes & Boone. After reaching 31% in 2016, the oil exploration industry’s average loan-default rate is projected to hit only 4% in 2017, Fitch Ratings analyst Joan Isi Okogun estimated. “The pipeline for restructuring candidates has thinned out, and oil prices are showing some stability following the OPEC announcement,” Okogun said in a research note.