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10 Mar 2020

WTI oil price slide threatens to devastate US frackers

  • WTI oil is witnessing a chart-driven bounce at press time. 
  • Sustained price slide will complicate matters for debt-laden US producers. 

West Texas Intermediate (WTI) oil is currently trading at $32.68 per barrel, representing an 8% gain on the day, having hit a multi-year low of $27.40 on Monday. 

The bounce could be associated with the oversold conditions reported by technical indicators following Monday's dramatic fall. 

Moreover, Russia-Saudi Arabia standoff persists and could yield deeper losses in oil and spell doom for the US frackers, according to the Wall Street Journal (WSJ).  

Dozens of debt-addled companies, including Chesapeake Energy Corp. and Whiting Petroleum Corp., were already facing financial difficulties even before Monday's drop and are now in a fight for survival, the WSJ article says. 

Key points (Source: WSJ)

"Probably 50% of the public exploration and production companies will go bankrupt over the next two years,” said Pioneer Natural Resources Co. Chief Executive Scott Sheffield. 

West Texas producers Diamondback Energy Inc. and Parsley Energy Inc. pledged Monday morning to curb activity in response to the oil-price decline.

Oil hedges used to protect cash flows weren’t effective at current prices, traders said, citing industry data.

If oil prices continue to drop, the US producers with larger debt loads could go bankrupt and the industry would struggle to generate free cash flow. 

As a result, a sustained price slide will force the Federal Reserve to keep interest rates low to ease the cash crunch. 

Technical levels

 

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