2020 has definitely been a bearish market for the oil industry.
A recent report from the law firm Haynes and Boone show that 36 oil producers filed for bankruptcy protection from January to August. In total, their debt is $51 billion.
The sector is on track for the highest number since the shale crisis in 2016, when 70 companies filed for bankruptcy. However, most of these companies were much smaller, and their debt totaled $56 billion combined.
Last year, by the end of the third quarter, there were 33 oil producer bankruptcies. And in the same period in 2018, there were 22.
The oil industry, which has been dealing for years with long-term concerns regarding renewable energy, was hit hard by the pandemic this year.
As the world economy froze with lockdowns, the oil demand collapsed, and the global supply was excess.
Consequently, US crude oil futures prices crashed in April below zero for the first time in history.
According to EIA (US Energy Information Administration), the average imported crude oil price last year was nearly $59, and this year is $37.50.
The most recent OPEC (Organization of the Petroleum Exporting Countries) forecast, from mid-September, expects global consumption this year of 90.2 million bpd (barrels per day), 9.5 million bpd less than 2019.
For the next year, OPEC’s outlook is a rise of 6.6 million bpd from this year’s level — so it will still be lower than in 2019.
Major forecasters agree the global consumption will not return to 2019 levels until at least 2022. Some believe this will never happen.
In a report published in early September, the British energy giant BP said the global market for crude oil might never consume more oil than it did in 2019, its record high. The company considers different scenarios, but they forecast a decline in demand over the next 30 years.
A clear example of the end of the golden era of oil is the recent removal of Exxon shares from the Dow Jones Industrial Average, the classic blue-chip stock index that the company joined 92 years ago.
The energy stock prices, in general, felt the pandemic punch hard. The S&P 500 Energy is down around 50% year-to-date.
The index data makes it clear that the sector was struggling even before the pandemic. It dropped 24% in the last three years, 14% over the previous five years, and 6% since 2010.
It doesn’t mean, though, that energy stocks are bad investments. However, in the short and medium-term, most of them probably are.
But there are also companies investing heavily in clean energy, which have good perspectives for the future.
And if you’re prepared to read the charts and take advantage of volatility, you can make money by investing in the struggling firms now.
In the long term, some experts believe that the substantial fall in the energy stock prices is actually a great opportunity, considering the historical resilience of the global energy demand.
In this case, though, a detailed analysis of the company’s numbers is necessary.
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