Don't expect shale to rise like a 'phoenix from the ashes': Oil expert
Don't expect the US shale industry, which was hit by the pandemic and oil price war earlier this year, to grow rapidly soon, says an oil expert.
"There are people who believe that slate will still rise from the ashes like the phoenix like it did in the previous downturns," Vandana Hari, founder and CEO of Vanda Insights, told Yahoo's The First Trade Finance.
"I think slate got a really hard blow this time. It will be very difficult to come back, ”she added.
"It's a very debt-dependent sector, unlike many other oil and gas producers worldwide. And I think investors have put a lot of pressure on the slate sector. They just won't be ready to step in again," said Hari.
A Deloitte study shows that about 30% of US shale companies are "technically insolvent" when crude oil futures are $ 35 a barrel.
The study also found that "challenging oil market conditions could cause the shale industry to impair or depreciate the value of their assets by up to $ 300 billion, with significant impairments expected in the second quarter of 2020."
Research shows that deep consolidation in the industry is likely to follow.
Large oil companies expect a better fair
Hari sees large oil companies emerging from the pandemic.
"The oil majors in general - those with deep pockets - who stay on the right track in terms of new energies and green businesses tend to do better," said Hari
"The BPs (BP), Shells (RDS-A) and Exxon Mobils (XOM) around the world can also become debtors under the current circumstances," she added.
Oil service companies that typically offer engineering, fluid transportation, surveying and testing are not expected to be fair.
"Service companies really depend on how quickly upstream investments are recovering around the world, and I don't see it that quickly."
In this photo, taken on March 12, 2020, workers are changing equipment on the drilling platform of a Seneca Resources shale gas well in St. Mary's, Pennsylvania (AP Photo / Keith Srakocic).
"Shadow still remains on the markets"
Thanks to OPEC + cuts and renewed optimism about the recovery in demand, oil prices have risen seven times a week in the past eight weeks.
On Monday, the Brent crude oil futures (BZ = F) rose + 2% and stood at 43.08 per barrel. The West Texas Intermediate (CL = F) contract for August rose + 1% to hit $ 40 a barrel for the first time since March.
Prices could fluctuate around the current level as COVID 19 cases recur in some regions of the United States and the world.
"There is still a shadow in the markets," said Hari. "The emergence of economies from corona virus locks has so far proved to be anything but smooth."
Ines covers the US stock market from the floor of the New York Stock Exchange. Follow her on Twitter at @ines_ferre
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