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As The US Rig Count Collapses Most Since 2014, Will The Fed Bail Out Oil Companies?

As The US Rig Count Collapses Most Since 2014, Will The Fed Bail Out Oil Companies?

After a chaotic week in the energy complex, today’s data from Baker Hughes suggests American oil companies are finally starting to draw the line as rig counts collapse to their lowest since July 2016, having collapsed at the fastest rate since 2014’s crash…

The lagged response on production may be imminent…

And pressure is building on the Trump administration to “do something” – even if doing something is the worst thing for a market that needs the pressure of low prices to force restructurings. As Bloomberg reports, a plan being weighed by Treasury Secretary Steven Mnuchin to steer financial aid to beleaguered oil drillers could set up a clash with Democrats who have warned against any bailout for the industry.

As OilPrice.com’s Irina Slav notes, the Department of Treasury may set up a lending fund for oil companies, Secretary Steven Mnuchin told Bloomberg this week, adding that there was nothing final yet.

“One of the components we’re looking at is providing a lending facility for the industry,” Mnuchin said.

“We’re looking at a lot of different options, and we have not made any conclusions.”

Besides direct loans – which the Federal Reserve would implement – the federal government may also buy stakes in some oil companies in addition to providing loans. It could also ask these companies to reduce production.

The larger oil companies that hold an investment-grade rating would either have to fend for themselves on the debt market or take advantage of the loan program that the Fed has set up for small businesses, even if they are not exactly small businesses. The actual small businesses, in the meantime, are asking the Fed to adjust the rules of the loan program to allow them to use the funds to pay off existing debt.

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