Oh man, Hillary’s WWIII over that Saudi pipeline was going to be so amazing. I already miss waking up to heart palpitations from weird dreams of a “Red Dawn” style invasion, and after years of honing my skills in the wasteland, looks like my six toed offspring won’t have to navigate through nuclear fallout anytime soon.
Via Reuters:
Russian President Vladimir Putin said on Sunday U.S. President-elect Donald Trump confirmed to him he was willing to mend ties, though he also said he would welcome President Barack Obama in Russia.
“The President-elect confirmed he is willing to normalize Russian-American relations. I told him the same. We did not discuss where and when we would meet”
Putin also told a news conference in Lima after the APEC summit that Russia is ready to freeze oil output at current levels.
Oh shit! Did you hear that bitches? Let’s see if this leads to a crude awakening, and if OPEC can get their act together and do the same.
Texas is taking back regulation from the OPEC fools that it gave up thanks to Jimmah Cahtah.
The adults are now in charge.
Why do Americans want higher gas prices?
To avoid the impending oil & gas industry loan defaults which could trigger another credit crisis?
so, to sumarize all this – Buy Treasuries?
Zero.. I believe that oil loans comprise only about 3% of major bank portfolios. Real estate loans were several times higher liabilities. But certainly some regional banks are at risk if crude prices fell sharply again. But at what point do rising oil prices impact the overall economy by bleeding out discretionary income?
0ne thing we know about Putin. He’s not doing anything for Trump without getting some promise in return. Time will tell.
Trader, another credit crisis doesn’t need to threaten the solvency of major banks to rape people far and wide. Something like 20% of high yield bonds are oil & gas related, spread throughout all sorts of pensions, mutual funds, annuities, and other financial instruments, and defaults in the sector are growing. I don’t have a really good read on derivatives exposure now. I think it used to be pretty high but I know banks cleaned a lot of them up. Need to revisit.
If high yield goes, investment banks are going to reign in liquidity as they adjust their risk profiles. To make matters worse, new liquidity requirements stemming from the 2008 crisis are going to make it much harder for banks to buffer shocks throughout fixed income (not just high yield). (http://money.cnn.com/2015/04/09/news/jp-morgan-dimon-next-crisis/index.html?iid=EL)
All of this could lead to a nice liquidity crisis at an inopportune time, which could reverberate far and wide.
Here are some articles to check out of you have the time. Some of them are a couple years old. I have included relevant snippets but they are all interesting reads
http://www.forbes.com/sites/greatspeculations/2014/10/16/watch-junk-bonds-for-early-warnings-of-a-new-financial-crisis/#6d7dae244ea1
“What could trigger the next crisis? One likely source is the high yield junk bond market. In the last four years, the high yield bond market has grown from $1 trillion to more than $2 trillion in total market value. It took more than three and a half decades to reach $1 trillion and just four years to add the second $1 trillion. At the same time, credit quality has decreased to ratings that signify “currently vulnerable to non-payment,” “substantial risk” and “extremely speculative.”
Martin Fridson, CFA, one of the smartest minds in high yield research, estimates that nearly $1.6 trillion in high yield (“junk”) bonds will default between 2016 and 2020 – that’s $1.6 trillion in a $2 trillion market. This is a stunning number.
Fridson believes default rates will surge between 2014 and 2016 and persist through 2020. Bonds don’t lose all of their value when they default, but a 40% loss of value, a reasonable guess, on $1.6 trillion is a $640 billion hit on the $2 trillion dollar market. That’s a 32% decline in value.”
http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11231383/Oil-price-slump-to-trigger-new-US-debt-default-crisis-as-Opec-waits.html
“This rush to pump more oil in the US has created a dangerous debt bubble in a notoriously volatile segment of corporate credit markets, which could pose a wider systemic risk in the world’s biggest economy. By encouraging ever more drilling in pursuit of lower oil prices, the US Department of Energy has unleashed a potential economic monster and pitched these heavily debt-laden shale oil drilling companies into an impossible battle for market share against some of the world’s most powerful low-cost producers in the Organisation of Petroleum Exporting Countries (Opec).
It’s a battle the US oil fracking companies won’t win.”
http://www.wsj.com/articles/banks-face-massive-new-headache-on-oil-loans-1460453401
“Fitch Ratings Inc. released a report Tuesday that said that nearly 60% of unrated and below-investment-grade energy companies are likely to have loans labeled as “classified,” or in danger of default under regulatory guidelines. “It’s grim,” said Sharon Bonelli, senior director of leveraged finance at Fitch.”
http://www.cnbc.com/2015/12/23/default-danger-for-us-high-yield-in-2016.html
“”The U.S. market, is about 20 percent oil and gas related and then if you add the mining and the capital expenditure, that supports both of those industries. It is starting to become a pretty significant part of the market – and that’s why people are concerned,” Head of European Leveraged Finance at Fitch Ratings, Edward Eyerman told CNBC Tuesday.
Eyerman noted that a major risk is the number of issuers with both dollar denominated debt and euro denominated debt, with contagion from the former into the latter. He added that this could lead to general weakness in the European high-yield space. ”
http://www.cityam.com/253931/sp-us-oil-and-gas-firm-tips-global-corporate-defaults
“”As of 30 September, the global speculative-grade default rate for the energy and natural resources sector rose to 18.96 per cent – the biggest month-to-month increase in energy and natural resource defaults since May 2016 – driven by an increase in energy and natural resource defaults with seven of the 13 defaults, 54 per cent.”
The ongoing commodities rout has hit oil, gas and other natural resources firms hard in the last couple of years, as low oil and metals prices have hit firms’ margins and hampered new project developments.
Deutsche Bank and Moody’s have both predicted rising levels of corporate defaults will increase in the next couple of years. Three key indicators which have historically predicted a rise in the number of defaults – debt levels, tightening monetary policy combined with flatter yield curves, and the possibility of an external shock – are all flashing red, according to Deutsche Bank. ”
http://www.bloomberg.com/news/articles/2016-03-11/oil-boom-fueled-by-junk-debt-faces-19-billion-wave-of-defaults
“Bondholders are paying dearly for backing a shale boom that was built on high-yield credit. Since the start of 2015, 48 oil and gas producers have gone bankrupt owing more than $17 billion, according to law firm Haynes and Boone. Fitch Ratings Ltd. predicts $70 billion of energy, metal and mining defaults this year, and notes that $77 billion of energy bonds are bid below 50 cents, according to a note Thursday.”