Assignment Details:
Oil Price Crash: 50% of U.S. Shale Could Go Bankrupt
Oil opened on Monday down roughly 25 percent, the sharpest decline in decades, and broader financial markets fell so precipitously that the circuit breakers put in place during times of volatility tripped, temporarily halting trading.
What is happening to the oil market? There are now multiple crises unfolding at the same time. First, there is obviously a health crisis – the coronavirus continues to spread. Large swathes of northern Italy are now on lockdown.
The number of cases in the U.S. has surged and could explode in the coming days. Mandatory lockdowns may not be far off. Second, there is a brewing economic crisis. China shut down parts of its economy in January and February. Parts of Europe followed. The U.S. is next. The Dow Jones has fallen by more than 16 percent in the past week, and markets have quickly shifted from concern to full-blown panic.
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U.S. Shale Goes Viral
International and domestic oil and gas markets and prices are under heavy pressure from COVID-19 impacts and the Russian-Saudi Arabia oil market battle. Now, all eyes are on U.S. domestic producers, especially those occupying the shale patch.
The U.S. domestic producer base is nothing if not diverse. While the entire industry has been under scrutiny for better performance, different companies are in very different positions. That diversity is highlighted in the table below using a sample of 153 public and private companies (out of thousands).
Shale plays are complex and expensive. A high degree of variability exists within basins. Especially in oilier, premium territory like the Permian, well performance and cost management challenges have been pervasive.
In this essay, you are going to analyze the global oil market and the US shale industry.
You may relate your answer to the characteristics of various market structures by focusing on the following questions.
1. Why does the price of oil crash? (Tips: you may answer the question by researching and analysing the demand and supply, and market structure of the global oil industry)
2. What market structure is US shale firms in? Do you agree that a lot of companies in the US shale industry will go bankrupt as a result of the oil price crash? Explain your answer. (Tips: you may answer the question by researching and analyzing the market structure of US shale industry)
