Quote:
Originally Posted by burn_this_city
Lets hope the darkest isn't sub $20 like it feels like we're headed. I would have thought people would begin shutting in marginal stuff worldwide at sub $40, but here were are at $28 and it hasn't happened yet.
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Quote:
Originally Posted by Slava
I think that is because of the leverage, which takes a while to unwind and is particularly messy. So its better for them to keep rolling at $28 and make the loan payment while they can in hopes of being "the one" that survives.
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Slava is right. Banks (particularly in the US) haven't addressed this issue yet in terms of write-downs/re-structurings/calling in loans. They've been trying to push it off with the hope that prices will come back before they have to deal with it. Companies have to keep producing even though they're losing $/barrel because they have to service their debt. Something like 85-90% of free cash flow in US upstream is going toward debt service. Which is shocking and it's not sustainable.
The dominos will start falling and that's when the real recovery will start. The lower oil goes, the faster and harder this will all happen.