U.S. oil and gas companies borrowed heavily at the start of America’s energy boom, and now they’re struggling with the debt. Oil prices were around $100 a barrel in 2008, and advanced drilling techniques were making it easier than ever to tap new reserves. Taking out billions of dollars in loans to boost production seemed like a safe bet at the time. And then, crude prices collapsed in 2014.
Now, U.S. banks say they expect more delinquencies and charge-offs from energy companies throughout 2015. With oil prices expected to stay around $60 to $70 a barrel this year, lenders are preemptively cutting credit lines to oil and gas firms and requiring more collateral to protect against a surge of defaults, according to a Federal Reserve survey cited by the Wall Street Journal this week.
Banks “indicated that their exposures were small, and that they were undertaking a number of actions to mitigate the risk of loan losses,” senior loan officers at commercial banks told the Fed in a report on loan terms and standards for the first quarter of 2015.
U.S. oil prices plunged by more than half in recent months, dropping from above $105 a barrel last summer to below $45 a barrel earlier this year. On Tuesday, U.S. crude futures rose above $60 a barrel for the first time since Dec. 11, 2014.