The 2008 financial crisis had a negative impact on the oil and gas sector as it led to a steep decline in oil and gas prices and a contraction in credit. The decline in prices resulted in falling revenues for oil and gas companies. The financial crisis also led to tight credit conditions that resulted in many explorers and producers paying high interest rates when raising capital, thus crimping future earnings.

The Financial Crisis

The financial crisis started in the real estate market in 2006 as defaults on subprime mortgages started to rise. At first the damage was contained. However, it ended up severely reducing economic activity as the rot spread through the economy. For some time, commodity prices continued to rise even as the housing market weakened. The crisis eventually unveiled a wave of deflation and liquidation that took all assets lower, including oil and gas.

Oil and Gas Sector

Oil prices fell from a high of $147 in July 2008 to a low of $33 in February 2009. Over the same time period, gas prices fell from $14 to $4. The lower price for oil and gas due to the financial crisis was the major impact on the sector. Energy prices fell due to diminishing demand.

Eventually, aggressive stimulus employed by governments to combat the financial crisis resulted in expectations of increased inflation that led to commodity buying and an improvement in credit conditions. Demand rebounded as the fiscal and monetary stimulus reversed deflationary forces and led to prices climbing higher. However, companies forced to raise capital during this time period suffered higher interest rate expenses for an extended period of time.