Posted on 01/18/2016 5:43:13 AM PST by Citizen Zed
Big banks are cringing as crude oil is crumbling.
Firms on Wall Street helped bankroll America's energy boom, financing very expensive drilling projects that ended up flooding the world with oil.
Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven't are feeling enough financial stress to slash spending and cut tens of thousands of jobs.
Three of America's biggest banks warned last week that oil prices will continue to create headaches on Wall Street -- especially if doomsday scenarios of $20 or even $10 oil play out.
For instance, Wells Fargo (WFC) is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the "continued deterioration within the energy sector."
JPMorgan Chase (JPM) is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months.
"The biggest area of stress" is the oil and gas space, Marianne Lake, JPMorgan's chief financial officer, told analysts during a call on Thursday. "As the outlook for oil has weakened, we would expect to see some additional reserve build in 2016."
Citigroup (C) built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that "oil prices are likely to remain low for a longer period of time."
(Excerpt) Read more at money.cnn.com ...
For all the dolts on cnbc who think this will only affect Texas and North Dakota, they will be shocked to find that the only thing going for the US economy for seven years was the oil and gas industries.Banking, housing, car sales etc. will all be affected. Obama is killing these industries by promoting Iran’s oil industry in a time of glut and no growth. Mission accomplished for that Muslim lover.
The oil bubble. Take a nice road trip while you still can.
I have friends who were raking it in over in Dakota now back, unemployed, trying their hand at dish washing and various other entry level jobs. I may be soon joining them, being in the mining business.
I’ve been friends, who are rejoicing at these low prices, that this is an indication of how poorly the global economy is performing. It will have far reaching impacts in all areas.
I find it interesting that Obama isn’t taking credit for lower gas prices...Oh yeah he wanted us paying exorbitant prices. My bad
I’ve been telling friends...
You got that right and what goes around comes around, the Big Banks, Housing and Auto will get bailed out by the government forcing tax payers to pay the bill.
Although this time around there may not be enough middle class tax payers to fit the bill, but the government will wring out all they can, and the super wealthy have already payed the criminal political class for protection.
But everyone saves $25 dollars when they fill their car.... so it’s like an economic windfall for our country.... /s
This is a normal boom and bust cycle for a new industry — the shale oil industry boomed and now its going through a shake out. Loans will need to be worked out. All the people who moved to the Dakotas to get in on the boom will now have to look for other work. Then the industry will rationalize itself and the strong players will emerge when oil prices go back up. As painful as it is, its healthy for the economy. The government needs to stay out of it.
Exactly! Then we’ll get a big bail out, and the oil industry would be in the hands of the Marxists.
Well, this shows that there is a downside to the sharp drop in oil prices. Lots of people may be happy to see gasoline prices sliding, but, these loan losses, and job losses, will reverberate through the economy.
You are right about that. They do not seem to realize how many miles of steel pipe is used in just one well. Think of all the mining jobs just for iron ore. Foundry jobs, truckers hauling the stuff down the highways from the foundry.
Pickups, crap, the local dealers here would carry hundreds of them in inventory. Copper wire for the miles and miles of wiring per well. Electronics, lumber, masonry, rubber and chemical industries. And these jobs are indirect, not including the workers directly associated with the drilling and completion of wells.
You are right, nobody realized the impact to the economy us oil field trash added to the economy. Actually the Federal Reserve admitted it last week, they made a mistake and to try to ease the situation they let up on the mark to market rules for the oil industry loans.
Mission accomplished and added to the list. What’s next? Any predictions? The candidates should be talking about these DETAILS to get the voters involved.
A floating tariff that would stabilize oil at $40.00 bbl would make sense. Right now that would be about $25.00 per imported bbl. When the price per bbl goes above $40.00 then the tariffs would go away. This would protect American jobs, stabilize the oil industry and throw a wrench into OPECs desire to crush American oil infrastructure. This would also help balance the budget.
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