The rebound in oil prices has not been enough to stop the bleeding at many US energy companies, whose bonds keep weakening – and whose ability to muster fresh capital is dwindling away.
Oil and bond prices are moving in opposite directions, underlining the market’s lack of confidence in a cash-strapped sector that is seeing its prospects go from bad to worse.
The difficulties will start intensifying next week, when banks begin their twice-yearly review to set ceilings on how much exploration and production (E&P) companies can borrow.
And with crude at US$45 per barrel – far below the US$60 minimum that underpins many E&P business models – the expected cut in borrowing bases will come as a double whammy.
