Posted on 11/15/2014 7:51:26 PM PST by Lorianne
Remember the global financial crisis, triggered six years ago when billions of dollars of dodgy loans - doled out by banks to subprime borrowers and then resold numerous times on international debt markets - began to unravel and default?
Stock markets plunged, banks collapsed and the entire global financial system teetered on the brink of catastrophe. Well a similarly chilling economic scenario could be set off by the current collapse in oil prices.
Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry. West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.
“A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised,” warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.
(Excerpt) Read more at telegraph.co.uk ...
For distressed retailers like Walmart, its looks to be a good holiday season.
Just in the nick of time.
They’ll make it up on hedges (derivative trading) as long as the major banks don’t go bankrupt trying to cover their positions.
Deflation is a disaster.
Milo Minderbinder, is that you?
I tend to agree with that. If every small business owner were to lose 40% of their income next year this country would be in a world of hurt.
Sigh. Yes, I understand that. I’m enjoying the lower prices as well.
This article is about something else than that.
Certainly smaller and less diversified companies can go out of businesses. But others can start up again when the price rises again. In the meantime, the non oil producing part of the economy is benefiting.
That $75 for a barrel of oil is supposed to be “cheap.”
We are well conditioned.
How many people do you suppose energy companies and the service companies that support energy companies employ? Its crazy to want the energy sector to under perform.
It doesn’t work that way with oil.
If it cost more to produce a barrel than you get out of it you simply stop producing until the price goes up.
It’s in the ground so it’s not going anywhere.
You can pay a shut in fee to the mineral owners to keep the lease or just put the well on a timer and hold the lease through production.
A single barrel a month is considered production.
Producers will attempt to create a shortage to drive the price up but until they do millions of people are out of work and mineral owners don’t get royalty checks.
you cannot compare gas / oil to houses. You don’t “need” to own a house, you can always rent, but if you own a car or truck to get to or do your job you need gas /oil
When The Pretender took office gas was $1.87, and had nothing to do with the gigantic problems HE caused.
We don’t need anymore fossil fuel hating trolls on FR.
The most uninformed statement I've read on FR in a long time.
So then if the energy companies "under perform", then oil becomes scare and then oil prices rise again and then oil companies do well again.
What's the problem here?
So if the price of oil rises, no one will invest in oil?
That cycle takes at least a year and a half. More likely 2 and a half. While its under performing all sorts of stuff under performs. Including a lot of your mutual funds. People get laid off across a large spectrum of our work force. People lose houses, the don’t buy cars. It slows large parts of the economy during the down time. Its a bigger deal than your $100 a month savings in your fuel cost.
That cycle takes at least a year and a half. More likely 2 and a half. While its under performing all sorts of stuff under performs. Including a lot of your mutual funds. People get laid off across a large spectrum of our work force. People lose houses, the don’t buy cars. It slows large parts of the economy during the down time. Its a bigger deal than your $100 a month savings in your fuel cost.
I agree. 60 dollars per barrell seems like a good thing for us “great unwashed”
You have no idea what it takes to start and grow an oil company. To get the funding to buy leases etc. To get the funding to get rigs. You’re just being naive to suggest that smaller oil companies can go out of business and then others will just replace them once the price comes back. A small producer may take years to get to the point they are before your bankrupt scenario. It ain’t like owning a fence building company or something.
What I’m comparing is individuals benefitting (temporarily) by either asset values rising or prices falling vs. the bigger picture ... whether we are going to have another large shock to the economy from overextended larger players
?
Oil prices are going down because there is a glut of production. Oil prices will continue to go down as the market dictates.
Saying that there will be at some point a lack of production because there is too much production doesn't of course make sense.
What you will get instead is some market rate price point.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.