Global crude oil prices have rebounded somewhat from the twelve-year lows recorded earlier in the year; however, they are still quite removed from two-year-ago levels. Burdened by the lingering low-price regime, many of the higher-cost producers have either scaled-down their operations or gone completely offline, with quite a few filing for bankruptcy. According to the law firm Haynes and Boone LLP, about 85 North American oil and gas companies have gone bankrupt since the beginning of 2015. There has been a spike in defaults for U.S high-yield bonds. Speculative-grade U.S. defaults rose from 4.4% to 5.1% of total outstanding between Q1 and Q2, according to a recent Moody’s Investor Service bulletin.
That price rebound stirred some ― even if limited ― production activity, particularly among the more nimble shale operators. Oil-focused rotary rig count for example, rose six of the past seven weeks in the United States, according to Baker Hughes data. While many analysts and stakeholders in the industry have projected a market rebalancing in the near term, certain near-term and longer-term issues are noteworthy.
The protracted low-price regime was driven in the main, by oversupply of oil, which inevitably conduced to high inventory levels. In the United States, the Department of Energy reports that stock levels were well above the five-year range at the end of May; and though stocks dropped 2.3 million barrels the week ending July 15, they stood at a historical high for the period. At the end of May also, there were almost 94 million barrels of oil in floating storage globally, according to the International Energy Agency, IEA; and December saw a five-year record for floating storage tankers, as data for ocean tankers show. In addition, forward days of demand rose in Organization for Economic Cooperation and Development (OECD) countries from just under 58 in 1Q 2014 to more than 67 in 1Q 2016.
Global crude oil imbalance ― excess of supply over demand ― which rose steadily from less than half a million barrels per day (bpd) in 1Q 2014 to more than two million bpd in 2Q 2015 has since been on a downward trend. Continue reading