The effects of a vicious production and price war standoff between Russia and Saudi Arabia is already threatening the future of the U.S Shale operations. Shale oil drillers in the U.S are already facing an uncertain future on oil prices plunging below the $40 a barrel amidst a bitter standoff between some of the world’s oil superpowers.
U.S Shale Losses
Shares of shale oil explorers and drillers are already down by between 25% and 50% amidst fears that things could get out of hand should Saudi Arabia flood the market. The chaos in the oil market has already forced the EIA to delay its monthly Energy Outlook as it tries to figure what exactly is happening in the industry.
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Occidental Petroleum Corporation (NYSE:OXY) is one of the stocks that has taken a significant hit on oil prices plunging below the $30 a barrel mark, early in the week. The stock has already shed more than 50% in market value, having become clear that it could lose a lot of money from its operations on oil prices stagnating at current lows.
Oxy’s bonds have also come under pressure amidst the uncertainty in the oil markets. A lack of buyers in the market has seen the $750 million 30-year senior unsecured bond with a coupon interest of 4.1% close at 92.5 cents against the dollar in recent weeks. Traders are increasingly offloading their bonds amidst concerns that the burst could persist for long.
Whiting Petroleum Corp (NYSE:WLL), another company that was doing exceedingly well during the shale oil boom, also remains under pressure. Its stock has already lost more than 40% since the sell-off began early in the month. Similarly, the stock has shed more than 90% in market value since clocking highs of $150 a share in 2015.
Chesapeake Energy Corporation (NYSE:CHK), which has been flirting with a bankruptcy filing and previously focused on the shale oil drilling business, has also seen its stock come under pressure. The stock fell by more than 20%, further piling pressure on investors who have been feeding the company with cash in recent months.
Similarly, Chesapeake’s $1.25 billion senior unsecured notes issued as part of debt restructuring also remains under pressure amidst the uncertainty that has gripped the energy sector. Moody’s has already downgraded the notes to a Caa3 which is essentially a deep junk.
Saudi Arabia-Russia Big Plot
Things could get out of hand for oil shale drilling companies as the oil price wars persist. The elaborate price war, to some extent, designed to force U.S oil Shale companies out of business in a bid to create a monopoly on supply.
With oil prices flirting with lows of $30 a barrel, it is becoming increasingly impossible for shale drillers to generate any profits from their operations. The price war is also expected to send fears among investors a move that could send some big shale oil exploration companies into bankruptcy.
Russia and Saudi Arabia are hoping that the current price war would force banks to pull out from lending into the sector, given the increased risk at stake amidst the ongoing uncertainty. For banks to continue funding, the shale oil business oil prices need to rise and find support above the $50 a barrel level.
Big shale companies plunging into bankruptcies would favor the likes of Russia and Saudi Arabia, who would be able to control the global oil supply and control prices as well. Oil prices have struggled to rise back to the $70 a barrel level in recent years, something that has caused oil giants to lose a great deal from the once-lucrative industry. By clumping down on oversupply, Russia and Saudi Arabia hope the move will help fuel a further spike in prices.