Oil Industry Is Over Leveraged And Needs $65 Oil

The oil industry is overcapitalized, over leveraged and needs >$65/b oil to survive according to a research report issued to clients of Oppenheimer.

According to Oppenheimer's analysis, the prevailing low oil prices are unsustainable in a world accustomed to $100/barrel oil. High prices accelerated industry cost inflation, boosted oil supply and curbed oil demand growth. As a result, the $100/bbl environment to which the industry has become accustomed to has left many producers over-capitalized and over leveraged.

The report goes on to criticize both lenders and borrower who are both to blame for the oil industry debt bubble. Energy companies now account for 20% of the junk bond market, which leaves the high-yield market extremely exposed to oil prices and any significant sector defaults.