Image from cbc.ca
Image from cbc.ca

Oil used to cost more than $100 a barrel. This gave birth to many US oil companies. Now that the world has excessive oil supply, prices have gone down to less than $50 a barrel. This may mean death to some American shale oil producers. Small time oil companies have no other direction but to go down if oil prices will not improve over time.

Many oil companies in the country find it hard to sustain their business to get going. And sadly, OPEC stood on its ground. Walter Zimmerman (United-ICAP chief technical analyst) said, “The only way to resolve this issue is for the independent crude oil producers to declare bankruptcies.” Zimmerman has witnessed 3 different success and failure cycles of oil companies and can see a pattern where the weaker companies are always the one that end in tears.

Another analyst Fadel Gheit said; “small oil companies are the ones who have big debts and they will not survive extreme low oil prices for even 6 months”

“We can’t blame small oil companies since they saw dollar signs that caused them to dig for miles horizontally underground” Zimmerman said. But it is too late; these oil companies have invested a lot of money on cutting edge technologies to efficiently dig oil and acquired a lot of debt in the long run. Now, stopping operation is a luxury they can’t afford.

“In the end, small oil companies will declare bankruptcy and oil wells will end up under the ownership of the banks. Since their bigger rivals have the capital to buy these wells, they will end up having the monopoly over this business.