Prominent energy lenders said the oil and gas sector has clearly turned a corner following the rebound in oil prices and the surge in natural gas demand this year. Bankers anticipate increased drilling and the beginning of stronger loan demand in the second half of 2021 – a first since prior to the coronavirus pandemic.

Natural Gas Prices

To be sure, most banks with substantial exposure to energy reported lower levels of lending into the sector in the second quarter – as they have since the onset of the pandemic in spring of 2020, when oil prices collapsed. This reflected a combination of conservative lending as well as stronger cash flows among energy clients. Many oil and gas companies have focused on improved cash flows and paying down debt.

However, bankers said, with energy demand strong...