Posted on 12/12/2014 12:17:52 PM PST by Kaslin
The energy junk bond bubble has finally popped. Falling crude prices were the catalyst. Junk bonds of Energy XXI Ltd. plunged to 64 cents on the dollar from 106.3 cents since September. They now yield over 27%. Energy XXI Ltd. raised over $2 billion.
Energy production is extremely capital intense, and often accompanied by negative free cash flow.
Recently I have been getting numerous cold-calls, nearly all of them energy related. These companies need money, and snake-oil salesmen attempt to get it for them.
Energy investment added to GDP since 2010, with $550 billion in bond and loan offerings. Energy will now have a negative impact on GDP as funding dries up. And if oil prices do not head back up, expect outright defaults, and lots of them. This is what happens when bubbles burst.
Who Caused the Energy Bubble?
The Fed is responsible of course, by holding interest rates at record lows, stimulating all sorts of speculative investments. But it's exceptionally rare to see anyone in mainstream media point the finger in the right direction. Today I have a notable and welcome exception
(Excerpt) Read more at finance.townhall.com ...
With oil prices plunging, investors are questioning the ability of some issuers to meet their debt obligations. Research firm CreditSights Inc. predicts the default rate for energy junk bonds will double to eight percent next year.
Doesn't matter.
Whoever holds the bonds will just "securitize" them and sell them to the Federal Reserve to get their money back.
I tried to post this story yesterday, but FR has a black out on Bloomberg, and it wouldn't go through.
Another Bloomberg story said the USA pumped 9.12 million barrels a day last week, but I couldn't find any current numbers on consumption.
I'll guess we are close to 18 million on consumption.
Do you know the actual number or have a link?
And, any thoughts on WTI at $57?
As the resident perma-bull on tight oil, at what price will the banks and American drillers walk away from the business?
Total petroleum US consumption is around ~19 MMBPD, but that includes stuff like natural gas liquids.
Refined products from crude oil, we use 16.5~17 MMBPD.
http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbblpd_m.htm
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