Raymond James offered investors a stern warning Tuesday: $35 per barrel crude could mean a 70 percent collapse in cash flow for oil producers this year.
The investment bank’s bleak outlook means there could be plenty of pain in early 2016 for producers, who would need to make deep cuts to capital expenditures to stay afloat. But the drilling pullback could also drag the number of active rigs down even further, sending fewer barrels to market and ultimately sparking a sooner-than-expected rebound in prices, Raymond James analysts said.
“Investors are failing to recognize the fact that a $5 change in WTI translates into a massive ~20 percent change in U.S. E&P cash flows,” the bank’s analysts wrote in a note to clients. “2015 was a wasteland of low oilfield cash flows, spending and general activity levels, and 2016 is currently looking like it will be a whole lot worse.”
The conclusion was more pessimistic than most. Raymond James weighed figures such as commodity prices, forecast production, service costs and the number of financial hedges oil companies currently have — for both private and publicly traded companies — in its analysis.The rest of the article can be read by clicking here.
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