U.S. oil and gas companies are in need of cash, but it won't come cheap. As of now, explorers and producers have more than $85 billion in debt maturing over the next four years. Companies with poorly rated debt will have a difficult time engaging in capital markets in 2020, which increase the risk of waves of defaults. According to Moody's analyst, Sajjad Alam, "Despite our expectation of a generally low interest rate environment
globally, such companies face greater risk because of continuing
overproduction, depressed natural gas prices and widespread investor
risk aversion toward the exploration and production sector". The difference in pricing of interest rates based upon the borrowing of certain natural gas producing companies emphasizes how investors have become increasingly selective in a sector where they have lost massive amounts of money through bankruptcies due to the crash in oil prices back in 2015. It is still a credit picker's market.
If more of these companies default, is there an expectation that we will see a surge in the price of oil? If so, will that persuade interest rates to rise significantly? What impact will this have on the economy?
1 comment:
I think that the energy industry has faced a huge set back due to the outbreak of the virus, coupled with the impact it has had on financial markets. Since demand has been declining, I think that the energy companies will find it best to cut back on their production in order to stabilize prices and prevent further losses. This might result in potential price hikes, but the severity really depends on the overall demand inside and outside of the U.S. With Interest rates, I think this could cause a minor increase without much pressure.
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