Oil Projects Cancelled, ‘Rippling’ Layoffs and Defaults: “Money to Fund the Drilling Boom is Drying Up”
Mac Slavo
January 8th, 2015
SHTFplan.com
Falling oil prices have been hammering the energy sector and crimping the one part of the American economy that was actually expanding. Instead, that momentum is shifting towards rapid market contraction and possible collapse.
The sustained drop in oil prices is not only hitting Russia and vulnerable OPEC nations, it is hitting domestic projects here at home as well.
As Michael Snyder warned in December, the potential for falling oil prices to topple the fragile house of cards on Wall Street is enormous, particularly with the massive derivatives placed in the energy and commodities markets.
Wolf Richter, financial guru and CEO of Wolf Street Corp. is warning about the oil bust happening now.
Layoffs are taking place, future drilling and explorations are being canceled or put on hold, and investment money to finance new production sites is drying up, or becoming much more expensive:
Drilling for oil these days is all about endless amounts of no-questions-asked cheap money. And now, as the price of oil plunges relentlessly, the cheap money is drying up faster than ceiling paint.
WTI traded at $46.90 Tuesday evening. Down 56% from June. At these prices, the entire North American oil equation is out of whack, regardless of what Wall Street is telling investors to bamboozle them into surrendering more of their money cheaply in order to keep the house of cards from collapsing. But it seems, investors are catching on.
After dousing energy companies with super-cheap money for years in a Fed-designed drunken stupor, investors came out of it in the second half of 2014. All heck has since broken loose. Energy stocks, particularly of smaller exploration and production companies, are crashing. Energy junk-bond yields – and spreads over US Treasuries – are spiking beautifully to the highest level since the Financial Crisis (chart).
And new money, the fuel required to keep the mirage going, has suddenly become scarcer and a lot more expensive. With funding uncertain and oil prices collapsing, capital expenditures are getting slashed, and it’s beginning to show up in the Baker Hughes rig count. Rigs drilling for oil and gas in Canada have plunged 64% in five weeks, from 438 rigs on November 26 to 156 by January 2. Canada is shutting down its drilling operations.
The Rest…HERE
