Neither a Borrower nor a Lender be in an Oil Market After a Plunge in Prices


Anyone who has even casually glanced at the financial news in recent months is already well aware of the big story today—global oil prices have fallen dramatically. At their lowest levels in six years, and at 50% cheaper than the average over the last 4 years, this is a huge story, and one that is bound to end badly for certain companies in the oil and gas sector.  But aside from waiting to see who files for bankruptcy protection, how is one to know the players that are the most vulnerable? Well, it looks like the portent of doom for the oil industry will be the same as it was for those companies that precipitated the 2008 financial crisis: revolver raids—those sudden notifications to companies that their secured revolving credit line has just been significantly reduced.

Lenders are not so keen on renewing credit to companies whose products can only be sold at a much reduced price than when the size and terms of the credit were negotiated. And on the flip side of Polonius’ nugget of wisdom for young men striking out on their own, oil and gas companies do not want to be borrowers who are too dependent on their lines of credit for basic survival. Like a worker whose paycheck is suddenly and drastically cut, they simply won’t be able to make ends meet…

Neither a Borrower nor a Lender be in an Oil Market After a Plunge in Prices

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