The ongoing fall of crude oil prices could initiate a series of credit defaults and even insolvencies within the U.S. crude oil producers, according to estimates of a number of analysts. Alarmingly low price levels are a threat to the producers as it is becoming increasingly difficult that their forecasted total of about $89 billion of debt will continue to be serviced.

As much as 30% of the oil and gas industry’s $89 billion debt has reached distressing levels because companies face financial difficulties which directly lead to operational obstacles. And with no concrete signs that the crude oil prices might start increasing, the likelihood of them filing for bankruptcy becomes bigger and bigger.

Oil and gas companies, and particularly those fracking for shale gas, have become heavily leveraged but now the cost of debt versus the revenue amount has become worryingly disproportionate. The price of crude oil just twenty months ago used to be more than $105 per barrel, but since the beginning of the year it is trading around $30 per barrel. Since 2016 there was more or less free credit and in parallel with the increase of the energy industry, a lot of capital has shifted in that direction. The companies at risk of default are currently paying interest to lenders by more than 7% in comparison to U.S. Treasury rates of just 1.7%. A number of investors are attracted to the high return on offer and hope that crude oil prices might soon increase and in parallel, the bond issuers are looking to fund new projects with the same hope. But instead the current sentiment is deteriorating given the persistently low price levels.

WTI Crude Oil on Friday decreased by 3.8% and ended last week’s trading at $29.64 per barrel, while on a weekly basis it remained relatively stable with a 0.6% increase. Brent Crude on Friday also plunged by 3.8% to $33.01 per barrel.

A large contributor to low prices is the crude oil glut, meaning that there is more supply than demand in the market. On Wednesday, Iran’s oil minister Mr Bijan Zanganeh has welcomed the deal between Saudi Arabia and Russia to impose a ceiling on crude oil output but has not confirmed whether Iran would also limit their production levels. In particular, Mr Zanganeh said that Iran is keen on co-operating with both OPEC and Non-OPEC countries to stabilize the crude oil market and increase prices although there was no mention that they would restrict their own production.

Iran has just resumed with crude oil exports following the recent lift of sanctions. Even though the agreement has the purpose to boost oil prices, the decision to freeze output at January levels means that producers will continue producing at record high levels and therefore it will most likely not make a significant difference to the overall supply.

The crude oil market is undoubtedly under pressure and moreover there is no data to support any concrete forecasts for an increase in prices, which in turn favors crude oil bears. But could this be a favorable price level to go long for those who feel that the ‘black gold’ has already hit rock bottom?