Over the past few months, oil prices have hit record lows, resulting in the downfall of several major corporations that depended on oil for profit. Oil prices used to exceed $100 per barrel; now they are barely scraping the bottom at $28. Oil prices have dropped by over 70%, and exploration and production company defaults have reached 11%. Companies cannot survive at these rates, leading to a detrimental series of lay-offs, cut-backs, and bankruptcies.
The main reason for these issues can be tracked to Saudi Arabia, one of the United States’ biggest oil trading partners. With prices this low, United States oil production is suffering, while Saudi Arabia and the rest of the nation members of OPEC continue to profit from their oil production and trade. In most OPEC countries, the government controls the majority of oil production whereas in the United States, there are several players involved in oil production, which increases the damage low oil prices are doing to North American oil companies.
Houston and other “black gold” cities in Texas have felt the worst of the hit. Forty companies have already filed for bankruptcy, or shut down to “restructure,” which means they are taking time off to pay off debt. Employees are also feeling the backlash of dropping oil prices; cut-backs and lay-offs are not uncommon for major companies right now. Investors are withholding their money, waiting for oil prices to rise again.
The article compares this oil crisis to the one in 1986. Analysts claim that if this crisis is anything like the one 20 years ago, oil prices will continue to drop much more than this and company defaults will resort to almost 30%. The only thing we can do now is anticipate which way this oil crisis is going to take us.