WTI prices are recovering – closing at $32.73
After their most massive drop in history, WTI prices have recovered significantly.
In April, a price war between Saudi Arabia and Russia brought West Texas Intermediate crude into negative territory for the first time. The price of the Brent, the European benchmark, was down to its lowest level in nearly two decades. Amid this energy apocalypse, 23% of oil and gas platforms around the world stopped operating. This is according to data from Baker Hughes, a consultancy that reports this type of infrastructure since 1940.
WTI prices saw an 11% gain yesterday, to settle at $32.73 per barrel. The US benchmark futures prices for June deliveries are recovering too.
Phil Flynn is a senior market analyst at the Price Futures Group. He stated that, as world economies are opening and oil producers are pulling back, prices are on the rise.
However, Fed Chairman, Jerome Powell, declared that the US economy might not wholly recover until a successful coronavirus vaccine is developed. This may not happen until next year.
The coronavirus pandemic badly hurt the US oil industry
The American oil industry is taking the most substantial blow from the coronavirus pandemic. In just one month, it has put the brakes on 26.7% of its oil production platforms. The law of supply and demand has left its mark on the oil industry. According to the IEA, global capital spending on exploration and production will decrease this year by 32% to $335 billion. This is the lowest level in 13 years. Moreover, the pandemic has slashed nearly a third of global oil consumption, and companies are feeling the hard blow.
Exxon, the largest oil company in the US, will reduce the number of its platforms active in the Permian basin by 75% this year. This is considered to be the largest oil field in the country.
American Chevron only maintains five active platforms in the region, which is 71% less.
The US industry needs prices of between 40 and 45 dollars per barrel to avoid the bankruptcy of a thousand firms, a study by Rystad highlights. This is because the debt of these companies has grown in the last decade, due to the success of hydraulic fracturing. It has positioned the USA as the first producer of the raw material on the planet.
However, if the price of crude oil ranges from $10 to $30, small companies will no longer have enough cash flow to pay off their debts.
Still, large companies have the financial capacity to deal with this crisis. This is according to Juan Moscoso, director of global affairs at Deusto Business School.
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