The ongoing surge in energy prices could pose liquidity issues for a number of U.S. downstream sectors, with independent refiners the most exposed, according to Fitch Ratings.

Crude oil at $130/barrel and natural gas at $12.50/mmbtu have created cash strains on downstream users in the form of greater short-term liquidity needs as companies are forced to finance increasingly expensive inventories out of existing cash flows and revolver capacity. In many cases, high prices for end users have compounded this problem by squeezing both margins and demand, which pressures operating cash flows and can further increase the need for external financing.

Downstream sector company responses to higher energy prices have included a slow-down or deferral in capital expenditure plans, a stronger emphasis on inventory management, and the potential for accelerated M&A as some companies look to solidify their funding needs with existing asset sales.

"A number of existing credit revolvers were not structured to handle the impact of dramatically higher energy prices," said Mark Sadeghian, Director, Fitch Ratings. "This could be a particular problem for those issuers with lower credit quality if the challenging credit environment persists."

Fitch believes that independent refiners are the most exposed to fast-rising prices given their need to hold large quantities of crude oil feedstocks and finished product inventories. Liquidity risk is moderate for midstream energy companies, propane retailers and electric utilities but varies on a case-by-case basis, and in the case of utilities depends on the adequacy and timeliness of cost recovery mechanisms. Liquidity risk is generally low for integrated oil companies, product and LPG pipelines and natural gas distributors.