Diamond Offshore files for bankruptcy, U.S. oil prices fall 25%

Diamond Offshore Drilling announced its decision to file for bankruptcy. Yahoo Finance’s Jared Blikre joins the On The Move panel to discuss.

Video Transcript

ADAM SHAPIRO: Oil, WTI for June delivery, is off almost 26%. This on the news, as well, that Diamond Offshore filed for bankruptcy protection this morning. They operated about 15 rigs, producing oil for Hess, Occidental, BP.

Jared Blikre joins us now. And over the weekend, secretary of the treasury, Mnuchin, was grilled on Fox News about whether the US government's gonna begin a bailout program for oil producers. Seems like it's too little, too late for Diamond Offshore, Jared.

JARED BLIKRE: Yes, it does. Off about 64%. We don't even have it on our ticker list today. Not officially trading the way it was on Friday because of this. But we've seen a couple of other somewhat high-profile bankruptcy. Whiting Petroleum was really the first shoe to fall.

We have the Wi-Fi interactive heat map here today, and we can see there's a lot of green. Energy has been bouncing back nicely since those lows that we had 24 trading days ago. I mean, this is just today's price action.

But let's take a look at since that rally began 24 days ago. We can see Exxon up nearly 40%. Chevron up over 60%. And some of the smaller players really reclawing back some of those-- some of those losses that they had.

So here is ranked by performance here. But if you take a look, since the market top, 47 days ago, just tons of red. Only three stocks in the green, and one is a tanker. And they really have-- are benefiting from the lack of storage and crude oil. And the others are natural gas plays. But you can see, just a sea of red for this sector.

And, of course, it's precipitated on the back of the-- of the drop in commodity prices. Crude now, WTI, down 28% today for June. Of course, it was one week ago that we saw the May contract that was rolling off the board. That went negative.

But just take a look at the year-to-date price action in crude oil. We can see it's down 74%. And really, a lot of analysts are saying into the next expiration date, which is about three weeks away, could go negative again. Adam?

ADAM SHAPIRO: Jared, if we look at oil stocks and what's happening there, when Secretary Mnuchin talks about a potential bailout for oil companies, it doesn't address the issue of demand or storage, because oil can only be stored for a few years. What would a bailout package actually do for these companies, other than just give them cash? Because to stop producing is actually, in some cases, more expensive than to keep producing for them.

JARED BLIKRE: That's a very good point. And any time you're talking about bailouts, are we trying to simply provide them a liquidity lifeline because their business is still viable and maybe needs a lifeline as prices slowly recover? Or are they simply insolvent?

And it gets back to the moral hazard issue that we've talked about so much, when we have the treasury in the market and the Fed in the market. This would essentially potentially be providing anti-bankruptcy lifelines for a lot of companies that should probably be filing for reorganization, where the shareholders should be wiped out, where the debts should be reduced and the debtors become shareholders. I mean, there's a long history of this process working, which we're now kind of short-circuiting.

So details have been far and few between. Secretary Mnuchin kind of brought this to the forefront last week. And I'll be-- I wouldn't be surprised if it involves some kind of Fed-assisted bailout, where the Fed really cranks up the leverage. Adam?

ADAM SHAPIRO: And one thing Mnuchin keeps saying, Jared, is no shareholder bailout.