The pocalypse oil continues. The industry has been in freefall since coronavirus lockdowns drove demand into the ground. Fossil fuel companies have struggled with what to do, and it seems the last tactic is to not pay back the loans.
Wells Fargo posted a quarterly loss for the first time since 2008 on Tuesday, which isn’t exactly a comparison that inspires confidence. In his second quarter reportWells Fargo noted that the oil and gas industry is particularly struggling. Although representing 3% of its loan portfolio, 47% of delinquent business loans in the second quarter were related to oil and gas companies.
In total, the industry is $ 1.4 billion past due and the Wells Fargo report predicts that could get worse. The report also usefully points out that $ 3.9 billion in oil and gas loans is “under criticism,” which is a slogan for loans that are at risk of default. Keep in mind that this is only one bank, but things are not too good elsewhere.
JPMorgan saw its sales fall by 70% in the first quarter of this year, partly because of the drop in oil prices. Oil and gas companies are also to write their assets because they just can’t do what they do, which is to dig the dead dinosaur goop out of the ground. The biggest problem is that no one wants their oil and the prices are tough.
After briefly become negative earlier this year, the price of oil rebounded a bit. But not at the levels necessary to make drilling profitable. The Federal Reserve Bank of Kansas City saw oil production drop sharply in the last quarter in the region it also serves. This region covers a vast swath of the Midwest and Southern Plains, including all of Oklahoma, one of the epicenters of the fracking boom. Companies included in his investigation said they would need oil to get up to $ 51 a barrel to be profitable. But that doesn’t really happen with camped oil about $ 40 per barrel. This means that more and more companies risk running out of loans or laying off workers to cut costs, something even massive companies like BP are doing. Or both.
It also increases the chances that we may actually see the banks going into the oil business themselves, taking control of the fossil fuel companies that default. Wells Fargo was part of a group of major banks plot to do just that in April. Seems like there is a life, but the prospect of bank-owned oil and gas companies is now a little closer on the horizon.
I’m all for collective action when it comes to people versus oppressive systems. But I have to be honest, I’m not really sure how I feel about this one. It’s the opposite of anything that asks someone to choose their favorite puppy. On the one hand, the fossil fuel companies have embarked on a campaign of deception and delay and have funded politicians to meet their expectations. On the other hand, the banks. I want to say, what other is The at say?
Either way, it is clear that the current environment is not sustainable (even though the entire oil and gas industry has sparked a climate catastrophe). Oil and gas, particularly by producing them by fracking, have never been a good investment. Today, the risk is increasing for companies to default on their loans, go bankrupt and throw a wrench in the financial system as well as in global energy markets. If only there was a way at pass the world of these terrible investments and also avoid the destruction of life as we know it.