The sudden fall of oil prices across the globe is threatening to serve the US with another round of bankruptcies, according to Shale Executive.
According to a survey conducted recently by the Dallas Federal Reserve, in Texas, the business activity spiralled down under -0.6 in the second quarter. This came as a complete shock owing to the positive reading in the first quarter which stood at 10.8. This sudden downturn in business activity points towards a stifling in drilling and spending when compared to the quarter prior to the second one.
Oil and gas production, though, did continue to rise but the magnitude of this rise was definitely not good enough. Officials at the Dallas Federal Reserve claim that the spending index went through a downfall to negative territory, which points towards impending contraction.
This sudden slowing down in drilling is most likely to adversely affect the oilfield services companies who are directly dependent on drilling volume and activity for their revenue. These service firms will definitely have to bear the brunt as they will have to reduce the prices they charge for their services. The margins they could muster were found to be relatively lower in the second quarter when compared to the prior quarter.
The rate of employment and wages also experience a downfall in the most disappointing quarter in the last few years. This becomes even harder to deal with owing to the great start with tremendously positive readings in the first quarter showed.
According to the comments posted by oil and gas executives anonymously, the situation will get even worse than it already and the entire sector will bear the brunt of it. One of the comments pointed out towards the rapidly accelerating lack of interest in conventional oil and gas on the part of the investors. They also added that the securities of gas and oil companies sell at only a fraction of prices when compared to the recent past. The executive who posted the comments anonymously quite affirmatively exclaimed, that, another round of bankruptcies is well on its way. It is these statements by Shale Executives that paints a clearer and apparently a gloomier picture.
When it comes to positives in the sector, the picture isn’t as happy as there’s only one positive and it is in no way an immediate one, which is that the oil prices have begun to rebound and things might change for the better for the sector. The situation is by no means very good to look at or be optimistic for the near future.
With the rise in weak demand and supply, even though at slower rates, it is hard for the shale executives to feel optimistic in any way.
The situation is not as clear as we want them to be, with officials not wanting to clear out the confusion and be clear about the impending doom, if it really is the case. But the executives seem to be hinting at a gloomy picture for the next few quarters.