FX.co ★ Plunging oil pushes Shell down

Plunging oil prices push down a bunch of oil producing companies. Black gold is drilled all across the globe, and production costs may differ substantially depending on the location. For example, drilling is rather cheap in southern regions. At the same time, harsh weather conditions make oil production quite expensive in northern areas. With current crude prices, oil producers may even operate at a loss. That is why a number of projects are being shut down, and oil companies’ stocks become less profitable.

Some time ago, an international rating agency Standard & Poor’s downgraded the credit rating of oil giant Royal Dutch Shell that was placed on watch for another possible reduction. The credit rating for Shell was reduced by one notch to A+ from AA-. The list of companies, which received the negative outlook, includes Repsol, BP, three companies owned by Statoil, Total, and Eni. The move was driven by insufficient debt coverage measures of oil producers. Besides, analysts at Standard & Poor’s do not welcome Shell’s plans for 2015-2017.

Nevertheless, the main reason for the downgrade is the current situation on the global commodity market. Crude prices have remained on the downside for a long time and there are no signs the outlook will change in the coming years. As long as supply exceeds demand, the future of oil producers remains uncertain. As a result, the oil producing companies have to cut their spending and abandon expensive projects.