Crude oil prices have plummeted by more than 70% over the past 20 months, to twelve-year lows. The impact on both producing companies and countries has been significant. Major oil and gas companies have seen large dips in profits. In 2015, BP suffered its largest annual loss in two decades while ExxonMobil, Royal Dutch Shell and Chevron had 50%, 80% and 76% decline in earnings respectively, for the same period. ConocoPhillips cut its dividend by about 66%. Revenues for members of Organization of the Petroleum Exporting Countries, OPEC, are expected to slump to about US$400 billion from US$1.2 trillion in 2012. Azerbaijan and Nigeria are mooting emergency loans from the International Monetary Fund, IMF, while many analysts are expecting a Venezuelan default on her foreign debt. Even Saudi Arabia’s fiscal reserves fell to a four-year low last year.

Market Uncertainty

While the current turmoil in the global economy derives from concerns about the health of the global economy, the impact of oil prices contributes in no small measure. As China, a major energy ? especially oil ? consumer transitions from an emerging market to a developed one, a marked reduction in her growth rate may be the new order. During her years of steep economic growth, China was an export destination for commodities from countries such as Russia, Brazil, Chile and Nigeria among many others. The downturn has meant falling demand for these commodities and with falling oil demand has come falling oil prices. The current capital flight estimated at tens of billions of dollars per day, is a testament to the country’s influence on global markets.

While the shale producers in the United States have shown unexpected resilience in the face of low oil prices, it is doubtful if the debt-ridden operators can sustain operations at current crude oil prices. WTI (CL1:COM) closed US$27.32 on Thursday.

Very few, if any significant oil producers in the United States are cash flow positive at US$27 per barrel of oil. Between 1Q 2012 and 2Q 2015, debt service as a share of operating cash flow almost doubled for United States onshore oil producers. In 2015, United States oil and gas bankruptcy filings spiked by 379% over the 2014 level. Moody’s just downgraded eight US oil and gas companies, increasing their borrowing costs and likelihood of credit default.