Bonds due in 2020 for Energy XXI, a driller in Louisiana, are now trading at 84.5 cents on the dollar, and Oklahoma-based SandRidge has seen its debt fall to 87 cents on the dollar. Related: The Next Fracking Boom May Be Closer Than You Think The markets will get a clearer picture as second quarter earnings season arrives, as indebted shale companies provide some clues into their ongoing struggles. However, the outlook moving forward may be gloomier than whatever they report in the second quarter. The swift drop in oil prices over the past year was driven by tepid demand and surging supplies. But the renewed drop has occurred because of broader market turmoil, which comes on top of the ongoing glut. Greece has defaulted on its debt and the stage is set for its exit from the euro, with unknown ramifications for the EU. That could weaken oil prices through a stronger dollar, falling EU demand, and a higher perception of risk. More concerning is the meltdown in the Chinese financial system. The Shanghai Composite and has lost more than 30 percent of its value since June and the Shenzhen Composite has seen 40 percent of its value vanish into thin air. While the precipitous decline raised worries at first and saw modest action from the government, the turmoil is quickly turning into a meltdown, sparking panic in China and around the world. Related: Dodging The Export Ban: U.S Condensates Export Flourishes Now Chinese regulators, in a desperate attempt to stem the outflows, have banned large shareholders selling their stakes for at least five months. Companies representing roughly 45 percent of the two exchanges (or $2.4 trillion) are suspending trading, trying to avoid more sell offs. "We are seeing a panic in China. It goes back to 2008, when it always seemed the Chinese were really in control of their economy. They were the first ones out there with a stimulus, and now it looks like they don't know what to do,” oil historian and vice chairman of IHS said on CNBC on July 8. Of course, as the largest oil importer in the world, China has massive influence over prices. A sharp downturn could crush oil prices. That would ensure larger default rates in the shale industry. By Nick Cunningham of Oilprice.com More Top Reads From Oilprice.com:
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