Oil price continued its decline over the week as a number of factors emerged that put a damper on the price of oil.
1) Baker Hughes reported that the US put an additional 12 new rigs to work in the previous week. This is the first increase in rig count since October 2014. The total count now numbers 640.
2) The Greek Crisis. In the event it turns from bad to worse, it is likely to impact the EU economy in the short to medium term. Oil price thrives on good economy news. In the absence of such, it is likely to decline.
3) US officials are confident of reaching a deal with Iran soon. It is expected that Iran will ramp out production upon the lifting of sanctions. This invariably, will pressure the oil price and put a damper on its price.
4) Improvement in methods of extracting oil by shale producers, which allow some producers to comfortably produce oil at US$60 - US$65 per barrel.
However, as the hedges run dry in the coming months, many shale oil producers will find it even more difficult to generate positive cash flow and for those who cannot produce profitably at US$60 - US$65 per barrel their very existence will be challenged.
Bond activities among shale oil producers in recent months have been slow (read The Economist article below), and this means that banks are lending less for fear of collapse or interest rate has gone up, making it meaningless for shale producers to borrow and refinance their existing debts.
This is a very interesting article by The Economist, and it is worth a read.
I would advise all to stay out of US shale companies as their debt levels are just too high. If you should invest in oil companies, go for those which are onshore with conventional plays.
http://www.economist.com/news/business/21656671-americas-shale-energy-industry-has-future-many-shale-firms-do-not-fractured-finances
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