Worst oil bust in 45 years brings US crude below $31 a barrel

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HOUSTON — The oil bust that has cost the United States roughly 70,000 energy jobs has become more severe than any downturn in 45 years, Morgan Stanley said Monday, as crude prices fell a sixth day.

Crude prices tumbled below $32 a barrel on Monday, and over the past 19 months have plunged further and for a longer time than even the 1986 oil bust that deeply bruised the Texas economy. Morgan Stanley says the five major downturns since 1970 no longer can be a credible guide as the oil market enters “uncharted territory.”

“No floor in oil prices has been found so far,” Morgan Stanley analysts wrote, saying crude prices show no sign of recovering in the first half of this year. The Organization of the Petroleum Exporting Countries continues to pump oil “at will,” and the emergence of Iranian crude exports could weigh heavily on the market this year, the investment bank noted.

Related: Oil crash job losses may be steeper than previously thought

U.S. crude fell $2.18 to $30.98 a barrel on the New York Mercantile Exchange in morning trading, extending a straight six-day loss in 2016 to 16 percent. Brent, the global benchmark, fell $2.23 to $31.33 on the ICE Futures Europe.

The worst downturn in more than four decades likely will bring Big Oil earnings down by 30 percent to 70 percent this year and cut operating cash flows 10 percent to 15 percent, Morgan Stanley said. Oil and gas spending, the investment bank projected, will fall 34 percent from 2014 to 2017.

Nearly half of the high-yield corporate bonds, known as junk bonds, that U.S. oil producers and oil field service companies took out to fuel the domestic shale oil and gas boom are trading at distressed levels.

And if crude prices stay under $35 a barrel, more than half of the high-yield U.S. oil and gas firms will need to go through a corporate restructuring, said Shaia Hosseinzadeh, head of energy and natural resources at private equity firm WL Ross & Co.

“That doesn’t mean they’re all going to go bankruptcy but they’re going to need some kind of fix,” Hosseinzadeh said.

Related: Sapped U.S. shale budgets to come in lower than 1980s bust

The financial pressure of sub-$50 oil has started to cut into high-cost U.S. shale production but is also expected to bring output outside of OPEC down this year by an estimated 700,000 barrels. That could help set the stage for an oil-price recovery later this year but it also shows the fiscal difficulties of maintaining production while crude falls.

“You’re starting to see the Rodney Dangerfield barrels come out of the market,” Hosseinzadeh said. “They’re the barrels that are non-shale, non-OPEC: these are the barrels that get no respect but they account for a big part of the market. The biggest is going to be Russia; then South America and the rest of the world.”