The global oil price war is pushing highly indebted US shale companies toward default, an event that could trigger ‘financial contagion’

The global oil price war is pushing highly indebted US shale companies toward default, an event that could trigger ‘financial contagion’

The global oil price war has been a huge shock to the US shale industry, and it could spark higher default rates going forward, JPMorgan wrote in a Wednesday note.. For US shale companies, it elevates the risk of financial contagion, according to JPMorgan.. While increased oil supply and lower prices will boost the economy amid the coronavirus outbreak, they will also hurt the US shale industry, Joseph Lupton at JPMorgan wrote in a Wednesday note.. The US shale industry is much leaner than it was during that episode, according to the note.. Cost structures for US shale companies are now lower, given a stronger set of still-surviving operations, Lupton said.. As stocks have tumbled amid falling oil prices, energy company bonds have been pushed into riskier territory as investors dump them .. Going forward, Lupton expects cumulative high-yield energy default rates of 24%, mostly in 2021, assuming that crude rises to $40 per barrel in the second half of 2020 and gains to $50 per barrel the next year..