When oil prices fell in late 2014 many companies in the energy sector dealt with the issue by thinning out operations – cutting overhead, limiting capital expenditures and reducing staff. The moves were done cautiously as no one knew how long the drop would last. Now, more than half a year later, the environment is still tenuous, which may lead to a number of distressed sales as business owners rely on M&A as a means to avoid trouble with creditors.
The energy sector performed the best of all sectors in the second quarter of 2015. A composite of energy commodities rose 13.81% and was the strongest commodity sector in the futures markets for Q2. However, there has been a dramatic change in Q3 as the price of oil has drifted below $40 per barrel. Brent crude oil spot prices decreased by $5 per barrel in July to a monthly average and fell even further at the end of July and into early August. The current values of futures and options contracts continue to predict a prominent level of uncertainty in the price outlook, which will most likely lead to a very cautious environment for perspective acquirers. Some experts predict that the current record level of inventory will cause prices to settle back down again, and that 2015 will end with West Texas Intermediate (WTI) prices at about $50 per barrel. However, with so much volatility and uncertainty most experts are not willing make predictions.
Posted by Roy Graham.