As oil prices remain low, the benefit for US consumers is obvious. But for oil companies? In the short run, prices running at about the cost of production mean no profits for the year, but in the longer run there is a terrible problem ahead.
That’s because the start-up of so many fracking operations across the US came at a cost, and that cost was financed primarily through junk bonds – high yield securities that demand a hefty interest payment to keep the operation going.
Zero profit means more than hard times – it means default and, in all likelihood, a shut down of many wells. That might not only spike up the price of oil, it is big enough to trigger a huge financial problem.