Posted on 01/14/2015 4:45:14 AM PST by thackney
Two major U.S. credit ratings agencies on Tuesday warned of debt defaults by both U.S. energy companies and oil-dependent Venezuela amid crashing petroleum prices.
Fitch Ratings said it expects the default rate for U.S. energy junk bonds to rise from 0.7 percent over the next few years, though it didn’t forecast a specific rate.
It said more than $78 billion in the U.S. energy sector’s so-called junk debt is rated at Fitch’s “weak” B- rating – just one spot above the “very weak” CCC rating. That’s up from $55 billion at the end of 2013.
Over the past five years, U.S. oil companies have collected around $217 billion in risky debt as investors, starving for bond yields because the Federal Reserve set interest rates low, poured money into the booming shale industry. Now, Goldman Sachs says U.S. oil companies could start seeing debt defaults if domestic crude hovers around $40 a barrel for the next six months.
When oil prices were above $100 a barrel a few months ago, Fitch said, only 1 percent of the sector’s risky corporate bonds traded under 80 cents on the dollar. Now more than two thirds of those bonds trade below that level. U.S. oil traded at $45.55 on Tuesday.
“Sustained oil price weakness is likely to be the main catalyst for potential increases to our 2015 default rate forecast,” Fitch said, referring to its 1.5 to 2 percent projections for this year’s overall U.S. high-yield default rate.
“But there is some near-term cushion due to the lack of energy debt maturities and credit enhancing refinancing activity over the past several years,” Fitch said. “Still, the oil price environment dampens our HY default outlook for 2016-2017.”
Venezuela, Russia
Meanwhile, Moody’s Investors Service on Tuesday downgraded Venezuela’s sovereign debt and said free-falling oil prices have made it more likely the South American nation might default on its debt.
The ratings agency said a default would lead to 50-percent losses for the nation’s bondholders, and that Venezuela’s account balance could see a deficit of 2 percent of gross domestic product this year, down from its surplus last year.
Moody’s gloomy forecast comes a few days after Fitch downgraded Russia’s sovereign debt to a near-junk rating as both oil prices and the ruble have taken a nosedive.
And it was two days behind high-level talks in Riyadh, Saudi Arabia, between Venenzuelan President Nicolas Maduro and Saudi Arabia’s Crown Price Salman bin Abdul Aziz, as well as their respective oil ministers. They discussed ways to enhance ties between the two nations, according to the Associated Press.
Alberta likely to face recession because of low oil prices
http://fuelfix.com/blog/2015/01/13/alberta-likely-to-face-recession-because-of-low-oil-prices/
...Alberta’s premier disputed the Conference Board’s predictions that his province could slip into recession.
“I didn’t find their analysis to be particularly cogent to be frank, and the opinion that they put forward is an outlier among all of the other opinions that have been put forward by every one of Canada’s chartered banks,” Jim Prentice said during a press conference Tuesday. “And by other respected forecasters.”
Prentice, however, warned Albertans they face several difficult years in response to low oil prices. He said it’s a very different situation than the 2008 global financial crisis, when Canada avoided the worst effects because of a strong financial system.
The deputy head of Canada’s central bank, Timothy Lane, said if crude prices persist, they will significantly discourage investment in the oil sector, which he said accounts for about 3 percent of Canada’s gross domestic product. The central bank said that low oil and commodity prices are putting the Canadian economy’s post-recession recovery at risk.
His remarks follow Bank of Canada governor Stephen Poloz’s statement last month that low oil prices could knock 0.3 percentage points off the pace of economic growth....
Texas job growth to slow as oil prices tank
http://fuelfix.com/blog/2015/01/13/texas-job-growth-slows-as-oil-prices-tank/
Plunging oil prices means that Texas job growth will slow this year from its big 2013 spurt — but not to levels that would come close to a statewide recession — a Federal Reserve Bank of Dallas economist predicted Tuesday.
Texas jobs will increase by 2 to 2.5 percent this year, or between 235,000 and 295,000 net new jobs, said Keith Phillips, Dallas Fed senior economist and research officer who is based in San Antonio.
That will be less than the projected Texas 3.6 percent job growth for 2014, which created an estimated 408,000 new Texas jobs. Texas’ December jobs report will be issued later this month.
Texas’ job growth will be similar to that of the nation as a whole, Phillips said. That’s a change from previous years that saw Texas job growth consistently higher than the country overall.
Texas has been a job growth leader nationally the past five years, since the 2007-09 recession, because of strong performances from the energy, construction and export sectors, Phillips explained.
Still job growth of 2~2.5%, just slower than it was.
Kind of ‘ironic’ that one of the biggest booms to the American economy has taken this hit, and that at the same time OPEC does not cut production.
Survey: Widespread energy layoffs could continue in Houston
http://www.bizjournals.com/houston/morning_call/2015/01/survey-widespread-energy-layoffs-could-continue-in.html?page=all
Nearly half of energy executives in Houston and the rest of the nation said jobs cuts are likely in the first half of 2015, according to a new Rigzone survey.
In a Rigzone survey taken from Dec. 15 to Jan. 2 , 48 percent of U.S. energy hiring managers said they have already experienced a loss of budgeted positions due to market volatility, up from 18 percent who said this six months ago. About 36 percent of managers said that additional layoffs are more likely in the first half of 2015, compared to only 11 percent last summer who expected layoffs in the second half of 2014....
Also, 44 percent of energy managers said they expect less hiring in the first half of 2015 compared to the second half of 2014 and 5 percent said they do not plan to make any hires. However, 22 percent predicted more hiring....
WoW what a economy
Such growth can be said to indicate relative stability in the oil sector. That is for some period, growth will be reduced but existing efforts continue at a more or less level rate.
I think it shows Texas is more than just producing oil.
This has to be putting strains on Norway also.
Oil Shocks Norway’s Krone as Swedish Currency Rises to Parity
http://www.bloomberg.com/news/2014-12-16/norway-s-krone-slides-to-parity-with-krona-as-oil-prices-plunge.html
...as the currency joined the Russian ruble in oil-induced tumble. The krone, likened to an emerging market currency, declined to parity with the Swedish krona for the first time since 2000.
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Oil Losses Force Norway to Consider Measures to Back Economy
http://www.bloomberg.com/news/2015-01-08/norway-on-alert-as-oil-losses-have-government-exploring-options.html
Norway is considering tapping reserve funds to shield western Europe’s biggest oil producer from the worst slump in crude prices in more than half a decade.
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Norway’s Arctic Oil Hub Dream Fades as Lundin No Help to Statoil
http://www.bloomberg.com/news/2015-01-14/norway-s-arctic-oil-hub-dream-fades-as-lundin-no-help-to-statoil.html
Lundin Petroleum AB and Statoil ASA ended talks on jointly building an oil terminal in Norway’s Arctic, dealing a blow to the nation’s hopes of creating a hub for Barents Sea fields in an effort to revive its falling output.
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PM: Norway’s GDP growth dragged down by low oil price
http://www.energyglobal.com/downstream/refining/09012015/PM-Norway-GDP-growth-dragged-down-low-oil-price-97/
Norway’s economic growth will be lower in 2015 than predicted in the October budget bill due to the low oil price, Prime Minister Erna Solberg told reporters on the sidelines of a conference on Thursday.
Oil under pressure as World Bank cuts growth forecast
http://www.reuters.com/article/2015/01/14/us-markets-oil-idUSKBN0KN07620150114
Oil prices pared early losses on Wednesday but remained under pressure after the World Bank cut its economic growth forecast, doing little to end a rout that saw prices touch their lowest in nearly six years in the previous session.
Oil and other commodities came under strain after the weaker outlook from the Washington-based financial institution reinforced worries about a gloomy economic outlook at a time when oil markets are plagued by oversupply.
“We have quite bearish oil supply fundamentals, while there is still a slowdown in global oil demand growth,” said Myrto Sokou, senior research analyst at Sucden Financial. “We are all of us just waiting to see where the bottom is.”...
At the same time, Europe is on shaky ground despite the European Central Bank’s bond-buying stimulus plan.
“The global economy is running on a single engine ... the American one,” the World Bank’s chief economist, Kaushik Basu, said. “This does not make for a rosy outlook for the world.”...
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