U.S. Oil Falls Below $40 Amid New Signs of Glut; Output Cuts Discussed

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Some analysts and investors say the time of reckoning has been pushed back several months as banks prove reluctant to turn off the taps.

In their latest review of oil and gas deposits used as collateral for corporate loans, banks were more lenient than many investors and analysts anticipated. Lenders shaved an average of 8.6% off the amount companies can borrow so far in the second half of 2015, according to an analysis by Oil & Gas Financial Analytics LLC. Industry executives polled by law firm Haynes and Boone LLP in September expected cuts to average 39%.

As a result, many small and midsize U.S. energy companies have maintained access to credit lines that allow them to keep pumping oil and adding to the global supply glut. Banks are inclined to support producers so the producers can repay their loans in cash instead of in oil and natural-gas reserves.

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Although more than three dozen producers have already filed for bankruptcy protection this year, they have mostly been small companies that, when taken together, don't produce much crude.