This page has been archived and commenting is disabled.
Could Falling Oil Prices Spark A Financial Crisis?
Submitted by Nick Cunningham via OilPrice.com,
The oil and gas boom in the United States was made possible by the extensive credit afforded to drillers. Not only has financing come from company shareholders and traditional banks, but hundreds of billions of dollars have also come from junk-bond investors looking for high returns.
Junk-bond debt in energy has reached $210 billion, which is about 16 percent of the $1.3 trillion junk-bond market. That is a dramatic rise from just 4 percent that energy debt represented 10 years ago.
As is the nature of the junk-bond market, lots of money flowed to companies with much riskier drilling prospects than, say, the oil majors. Maybe drillers were venturing into an uncertain shale play; maybe they didn’t have a lot of cash on hand or were a small startup. Whatever the case may be, there is a reason that they couldn’t offer “investment grade” bonds. In order to tap the bond market, these companies had to pay a hefty interest rate.
For investors, this offers the opportunity for high yield, which is why hundreds of billions of dollars helped finance companies in disparate parts of the country looking to drill in shale. When oil prices were high and production was relentlessly climbing, energy related junk bonds looked highly profitable.
But junk bonds pay high yields because they are high risk, and with oil prices dipping below $70 per barrel, companies that offered junk bonds may not have the revenue to pay back bond holders, potentially leading to steep losses in the coming weeks and months.
The situation will compound itself if oil prices stay low. The junk bond market may begin to shun risky drilling companies, cutting off access to capital. Without the ability to finance drilling, smaller or more indebted oil companies may not have a future. The Wall Street Journal profiled a few fund managers who are beginning to steer clear of smaller oil companies. Moody’s Investors Service downgraded the oil and gas sector on November 25 to a “negative” outlook because of falling oil prices.
If oil prices stay at $65 per barrel for three years, 40 percent of all energy junk bonds could be looking at default, according to a recent JP Morgan estimate. While that is a long-term and uncertain scenario, the pain is being felt today. The FT reported that a third of energy debt issued in the junk-bond market is currently in “distressed” territory.
That begs the question; could a shakeout of the oil industry spark a broader financial crisis? Banks and other financial institutions could be overly exposed to energy debt. The Telegraph paints a dire scenario in which the debt bubble bursts because of low oil prices, leading to a cascading 2008-style financial collapse, at least in the junk bond market.
Such a scenario may be a bit overblown. Persistently low interest rates keep demand for junk bonds high, meaning oil companies will probably be able to restructure their debt and continue to access capital. Also, drillers will not immediately face an existential crisis because many have hedged themselves, locking in prices for a certain amount of production.
But a junk bond crisis could become more likely if oil prices stay low for an extended period of time. Once a few companies begin to default, the problem could quickly spread. Another variable is how quickly the U.S. Federal Reserve will raise interest rates, which could significantly affect the attractiveness of the junk bond market.
Local and regional banks could be highly exposed as well, especially if energy loans make up a large share of their lending portfolio. The Wall Street Journal pointed out that banks like Oklahoma-based BOK Financial – with 19 percent of its loan portfolio made up of energy loans – could be the most vulnerable. Moreover, an economic downturn in regions that depend heavily on energy, such as Texas or North Dakota, could see a broader decline in demand for loans of all kinds. That could add to the pain for local banks.
Low oil prices are not just a problem for oil companies. Investment funds, hungry for yield in a low interest rate environment, have poured money into oil and gas. To be sure, we are far from a crisis at this point, but if oil prices don’t rebound, a lot of people are going to lose a lot of money.
- 17520 reads
- Printer-friendly version
- Send to friend
- advertisements -


Economic Darwinism.
Let's hope they let it work.
BUY THE DIP!!!!
unless..................it doesn't
"Could ___________ spark a financial crisis?"
I think you could fill in the blank with pretty much anything nowadays, and get a believable "Yes".
Buy the Drip.....
Is there anything that Zero Hedge DOESN"T believe could start a financial crisis? I mean the idea that another financail crisis is coming has been the mindset since the last financial crisis started.
We never left the last Financial Crisis. Nothing has been repaired.
Unemployment still hovers at 22% Inflation for essential goods and services is running at 8% to 9%. Of course these are excluded in Official government CPI reports. They also hedonistically adjust non essential goods and services.
It will progressively become worse until it implodes all at once.
World Fiat Currencies are doomed.
Are you just ignoring the fact that "Space Available" has become the newest and largest occupant of Commercial Real Estate?
Where have you been?
THERE IS NO STABILITY. When stability returns, if it ever does return, then maybe we will have a solifd foundation upon which to rebuild this wrecked World Economy.
I would not hold your breath.
"We financialized some folks..."
0b1knob
The statement you wrote “Is there anything that Zero Hedge DOESN"T believe”? How is that different the current nonsense that you believe?
- Could falling oil prices spark a financial crisis?
- Yes
- How 'bout rising oil prices?
- Yes
- That doesn't make sense!
- Yes
LACK OF STABILITY.
Without stable markets there will be no chance of returning prosperity for most.
Does that make sense?
Rising oil prices will make EVERYTHING more expensive at a time when NO ONE in the 99% can afford more 'capital outlay'. This will spark perhaps ANOTHER compound issue in the crisis.
Falling oil prices, if prolonged, could spark a rush to sell the junk bonds held therein, thus sparking ANOTHER compound issue in the current crisis.
In the game of Chess, if you are down to a King and the opponent has you in a position where any move you make would allow them to move in order to remove your King, this is called 'Checkmate'. In THIS situation, the only 'STABILITY' is the delay in the move of your opponent; NOT your ability to outsmart the obviously more powerful opponent (no pawns and rooks and bishops and knights and a Queen being available for you to sacrifice for your King's survival).
The poster you reply to is obviously an ignorant or arrogant ass. Ignorance and arrogance go hand-in-hand. (I got that from a Metallica song called 'Holier Than Thou'.)
Does THIS make sense, Tom?
When all the fly-by-night frackers start to go belly-up, and disappear in the middle of the night, and leave their lackeys to pay for the safe disposal of billions upon billions of gallons of polluted 'fracking wastewater' without any funds available, what do you think they will do? In California, the EPA finally admitted that over THREE BILLION GALLONS of fracking wastewater was dumped into (I think) 12 deepwater aquifers (the water that people drink, and the State that has a dramatic shortage of same).
The crops in North Dakota, Wyoming, etc. will be UNFIT FOR CONSUMPTION for fucking DECADES. If you like BREAD or CORN, that isn't a good thing. If you enjoy lighting your tapwater on fire with a BIC lighter and posting it on YOUTUBE, your future will be bright and cheery.
STABILITY is a TRANSITORY thing, Tom. 'Soylent Green' will be the 'new normal' if this shit keeps up.
Scott, re your chess example:
"In the game of Chess, if you are down to a King and the opponent has you in a position where any move you make would allow them to move in order to remove your King, this is called 'Checkmate'."
Nope. If your King is not in check, but must move (all pawns blocked), and any move would put it in check, which is what I think you are describing, that is STALEMATE, not checkmate, and results in a tied game.
http://en.wikipedia.org/wiki/Stalemate
http://www.chessvariants.org/d.chess/matefaq.html
I think the Fed may be looking to put some "Oil and Gas Securities" on its balance sheet.
Major pipeline deals are being signed and others closed without warning. Coups seem to spring up out of nowhere (Nicaragua is high on my list). Tanks and imperial jet fighters are moving across the chessboard with increasing speed. What fool would try to project anything out to 3 years at this point?
I can accurately predict massive chaos and misdirection.
[bunker fortification intensifies]
N/A,
Man we are living deep into the Chaos and Misdirection.
So much so, its safe to say we have gone over the edge at this point. Society is almost completely dysfunctional in every possible way. There is no way we are ever going to see what used to pass for "normal" again.
Its ON.
its not gonna get better.
Until it rots to pieces and something else is constructed to replace it.
There is no "forklift" solution for this bitch.
Its gonna be eat shit and die from here on in.
Better throw an extra layer of sandbag around that bunker...
And buy a few more fire extinguishers...
Actually, there is a forklift solution for this bitch...
It's a solution that has been tried before too...
I really hope it doesn't go there.
I really think it is going there.
Just a few more years...
-
I asked my father a question about how the German people could have ever gone along with what happend in WW2 when I was a young man. He could never really answer it (at least to my understanding). Recently, I was speaking with him about travelling to my Folks 50th aniv.. He kinda freaked me out when he asked if remembered asking him about how the Nazis came to be. I said yeah, told him he never really answered it...
He tells me, look around you, what you see today is exactly how it happened back then.
He's never ever said anything like that to me... Freaked me out.
Gonna be an interesting party.
A wise man once told me that 'experience is the best teacher'. Your father apparently loves you, and had to wait to answer your question in a way that you could understand, I think. Sometimes, you have to SEE things with your own eyes to fathom the reality of the situation (and have someone you totally trust tell you WHY).
You are getting close to a 'breakthrough'. There is a moment when all the events and experiences add up all at once, and the cusp of actionable decision is laid upon your own shoulders, Thanatos. Don't 'freak out'.
Could Falling Oil Prices Spark A Financial Crisis? No!!!! The financial crisis is already here. Could and should/will someone lose their shirt? Maybe!! It depends on who is your buddy.QE4.
BOK will ride out an oil bust, they are well capitalized conservative and have experience with oil busts, plus
in state oil companies are conservative.
it's probably much worse elsewhere
its the volatility in general the banks demand as their HFT algos shear the sheep.
Yes.
Look Sept 15 2008.
Oil
Silver
Housing
Stock
Look at the charts.
Excellent observation Deathrips... It will be VERY telling if the MF'ers are so one dimensional as to folow the same script. They're FAMOUS 4 being uncreative.
Some voice, somewhere, thinks...
$30 handle crude ~ $5 handle Ag
Well... If the crude handle bottoms at $60???... What does that portend for Ag? [barring any there2fore unannounced Midnight incursions to kill a man that had been dead for a decade already, and slide his body, gently, into the frankincense & myrhh scented waters of the calm Indian Ocean].
$10.xx -> https://www.tradingview.com/i/aOtEt2Dd/
[barring any there2fore unannounced Midnight incursions to kill a man that had been dead for a decade already, and slide his body, gently, into the frankincense & myrhh scented waters of the calm Indian Ocean].
"Dhurka dhurka DHURKA!"
The kings of the EAST are arising now. Russia, China, India... all are scrambling for PHYSICAL. The WEST chases PAPER contracts...
Fucking MADNESS.
9/11 in under 5 minutes:
https://www.youtube.com/watch?v=yuC_4mGTs98&feature=player_embedded
Women blink nearly twice as much as men.
They are taught the fine art of lying and half-truths starting at a very young age.
If all of them didn't blink twice as much as men, it would be a tell to us guys.
It keeps the peace, and the babies fed - and the Men hunting and fighting.
Women, by force of their peer pressure, wear eye makeup, and face makeup, and lipstick, and do shit to the hair on their heads, and shave the hair from their bodies, and put chemicals inside their vaginas in order to be 'attractive'. All of the chemical concoctions tend to need WATER and SALINE to work correctly. The eyes thusly DRY OUT, and the need to replenish the ocular organs becomes almost DIRE (hence, blinking more rapidly).
I'm not a woman, but I can understand biology, physics humanities, and chemistry (and the various interactions and natural reactions of a corporeal vessel). Your comment and useless fact is therefore a NON-SEQUITOR.
I DO understand your tangentical 'point', though. People who LIE (or lie HABITUALLY) are actively using the same resources as those who are chemically or environmentally starved for water or saline (they enter a 'survival mode', and this includes the saline self-refreshment of the eyes as one of the primary senses of survival).
Barry Soetoro seems to blink a lot.
With the lack of true liquidity in the bond market, this could be the catalyst to spark some sort of crisis.
Three years?
All it takes is for one little boy to say "Hey look! the emperor has no clothes on!"
Friday's bank failure list may see a comeback
In a word, no. It's defaltion and we need as much of it as possible.
Agreed…. Don’t go into it with debt.
Those tasty financial roofies, muni-bonds aren't subject to federal taxes…. Guaranteed by tax-power, yada, yada….
their stocks will collapse long before any junk bond rout. also, there is no junk bond market as per se. there is only the central bank money cartel which sets the price of everything.
Doubtful. Unless people were using this debt as collateral.
This is going to take a LONG time to develop. You've got to think a completed well hedged something.
Once the defaults start, won't the associated derivatives start to implode?
If defaults start, the number of derivatives tied to energy commodities & energy credit/default swaps would fall apart exponentially. As counterparties fail to pay, other counterparties fall into default...
the perverbial house of cards...
We are already in financaial crisis - it can only go to big bubble bust
Could? Will. Unless, contrary to data I have seen, there is actually positive cash flow from shale weils.
The US can just start a war with Iran or add boots on the ground in Syria. Have a false flag attack in Saudi Arabia maybe. Boom. The price of crude goes back to $90
Black Friday and Cyber Monday were the tells.
USA already started Ukraine crisis and prices of oil go down...
The so-called ‘crisis’ may be starting here.
These wildcat protests are moving to washington next week.
Get ya some supplies.
LOL
The US can just start a war with Iran or add boots on the ground in Syria.
Oh I get it now, the ISIS/ISIL/Mossad/CIA/MI6 thing was all about generating a "MENA Burning" premium to save the shale oil sector.
Iran is an ally now, silly.
They taper QE and oil prices fall. Hmm. Is all news bad news? Screw those jagoffs who kept the price of oil high and are now (poor babies!) maybe going to lose some money unless they can hitch their vacuum hoses up to the taxpayers' wallets.
Junk bonds might become junk?
Nah, TARP 2.0 baby. We cant let the shale boom fail!
Tanker rates continue to fall
http://worldmaritimenews.com/archives/145796/fearnleys-tanker-rates-sink...
Thank fuck i'm too stupid to understand what's going on, only being 3 pips above a Congress Critter.
Yes, a lot of people will lose money. If I owned energy junk bonds I would surely lose money. However if Bloyd Llankfiend owns it, it will somehow get transferred to the Fed. The Fed will then use its fiscal backstop to secretly make it magically disappear.
Just feels nice to be vindicated by ZH. The miracle of Fracking? I don't believe in miracles, if someone says they know of one, look into it first. Fracking was no secret, it's reliance on Junk bonds was well known. The well-head price was a steep discount below the index prices, due to transport costs among other things. Near zero interest rates favored those with good credit and kept junk yields down too. With below 70 dollars, the threat to frackers is very real. $50 well-head prices are common, with big debt servicing costs and the need to drill leases fast to retian them.
Nope, no miracle. Bring oil prices steeply up, and it's game on. But since when is producing high cost oil in a high oil price market supposed to be a miracle? It is not. It is plain old market forces. No, the miracle has been cancelled.
All I can say is that with a 40% default rate, thank goodness there's no leverage involved!
Yes. Great to be vindicated. This round the yield chasing junk bond crowd in the "fracking" space get it on their chin. Market sentiment is now anchoring on the real physical world demand/supply determining paper prices. You have to wait for a big shift in sentiment for the paper market to ignore the real economy fundamentals before the junk bonds recover.
There is still time for exit as there are still many muppets clinging on to the spins of their idolized financial advisors,etc. Just common sense to take some if not all of your money out of the table across the junk space.
Falling oil prices are already sparking a financial crisis in...Russia.
IT'S AWESOME!!
Free energy! Disaster!
Were you dropped on your head as a Child? Your opinions shows your stupiditiy. (that is all, over).
This has been in the works for like 6 or 7 years.
http://www.ibtimes.com/feds-approve-fourth-lng-export-terminal-amid-grow...
http://www.economist.com/blogs/charlemagne/2014/04/netherlands-lng-terminal (notice it is only functioning currently at 10% of it's capacity).
https://bdew.de/internet.nsf/id/EN_20110520-PI-67-percent-of-natural-gas...
Some will say the US can't supply the gas, then why would they invest in 8 to 10 of these plants in Texas and Louisiana at $15 to $21 billion dollars a pop?
They have the same exact plants in Saudia Arabia and that area of the world. They want to bypass Russia completely. Germany gets 68% of their gas from non-Russian sources and France gets 52% from non Russian sources.
I think Russia is getting bypassed big time because Putin doesn't want to play NWO fun & games.
The $400 billion gas deal with China is over 30 years. And we all now how the chinese play pool. Ask the Iranians. Sure, they'll buy their oil, for 40% less then the market price. They're pretty wiley fellows.
Get your popcorn, this will be interesting.
Who's manning Vlad's suicide watch tonight?
Whoever's watching him, make sure they don't let him have a belt like last night's shift. That was a close call....
In Russia they actually use hammer on the nail , after a few test hits. No nail guns
If you bothered to read the Russian press you would know they have been preparing for $60
oil for more than six months.
Fool me once......
Russians remember only too well their past.The roles are reversed from the 80's,
this is going to hurt the USA more than Russia, in the longer term, and maybe short term as well.
We are one move away from geopolitical checkmate , and that is the SWIFT alternate being launched.
If nukes are going to fly, it will be then, so I understand the hesitation.
Cheap oil may mean regime change for foes of the U.S. By Martin Feldstein
Leaders in Russia, Iran and Venezuela could lose popular support if energy prices bring down their economies Martin Feldstein, professor of economics at Harvard University: ‘The low price of oil is good news for the U.S. economy, because it implies higher real incomes for American consumers.’ The price of oil has fallen by more than a third in the past five months, to about $70 a barrel. If the price remains at this level, it will have important implications — some good, some bad — for many countries around the world. If it falls further, as seems likely, the geopolitical consequences on some oil-producing countries could be dramatic.
The price of oil at any time depends on market participants’ expectations about future supply and demand. The role of expectations makes the oil market very different from most others. In the market for fresh vegetables, for example, prices must balance the supply and demand for the current harvest. By contrast, oil producers and others in the industry can keep supply off the market if they think that its price will rise later, or they can put extra supply on the market if they think the price will fall. Oil companies around the world keep supply off the market by reducing the amount of oil that they take out of the ground. Oil producers can also restrict supply by holding oil inventory in tankers at sea or in other storage facilities.
Conversely, producers can put more oil on the market by increasing production or by running down their inventories. The market expectations reflected in today’s price reflect lower future demand and increased future supply. Lower demand reflects both the current weakness of economic activity, particularly in Europe and China, and, more important, the longer-term changes in technology, which will increase cars’ fuel efficiency and induce the use of solar power and other non-oil energy sources. The increase in the future potential supply of oil reflects new output produced by fracking, the development of Canada’s tar sands, and Mexico’s recent decision to allow foreign oil companies to develop the country’s energy sources.
A further decline in the price of oil could have major geopolitical repercussions — a price of $60 a barrel would create severe problems for Russia. These changes in demand and supply suggest that the future price of oil will be lower than industry participants expected until just a few months ago. Some of the recent changes in expected future demand and supply could have been anticipated earlier. But there is no way to know when attitudes and expectations will change. The historic volatility of oil prices reflects these psychological shifts as well as changes in objective reality. Today’s oil price is also linked to anticipated future interest rates. More specifically, oil producers have an investment choice: They can increase production now, selling the additional oil at today’s price and investing the proceeds at the existing long-term interest rate, or they can leave the oil in the ground as an investment. A low rate of interest encourages producers to leave oil in the ground. When the current abnormally low interest rates on long-term bonds rise over the next few years, it will become more attractive for producers to increase the supply of oil and invest the resulting income at the higher rate. Unless expectations about the fundamentals of future supply and demand change, the rise in the interest rate will cause oil prices to fall further.
The low price of oil is good news for the United States economy, because it implies higher real incomes for American consumers. Within the U.S., the lower price is transferring real income from oil producers to households, which raises short-term demand because households spend a higher proportion of their incomes than oil firms do. For the same reason, the lower price also gives a boost to aggregate demand in Europe, Asia and other oil-importing regions. The big losers from falling oil prices include several countries that are not friends of the U.S. and its allies, such as Venezuela, Iran and Russia. These countries are heavily dependent on their oil revenue to support their governments’ spending — especially massive transfer programs. Even at $75 or $80 a barrel, these governments will have a difficult time financing the populist programs that they need to maintain public support. Although Saudi Arabia and several of the Gulf states are also major oil exporters, they differ from other producers in two important ways. First, their cost of extracting oil is extremely low, which means that they will be able to produce profitably at the current price — or even at a much lower price. Second, their enormous financial reserves allow them to finance their domestic and international activities for an extended period of time, as they seek to transform their economies to reduce their dependence on oil revenue.
A further decline in the price of oil could have major geopolitical repercussions. A price of $60 a barrel would create severe problems for Russia, in particular. President Vladimir Putin would no longer be able to maintain the transfer programs that currently sustain his popular support. There would be similar consequences in Iran and Venezuela. It is not clear whether these countries’ current regimes could survive a substantial and sustained future decline in oil prices. By contrast, it is obvious that oil-importing countries would benefit greatly — as they already are.
"Cheap oil may mean regime change for foes of the U.S."
By Martin Feldstein
"Cheap Oil may mean nuclear or EMP attack by foes of the U.S."
By Thanatos
Then again MAY doesn't mean shit.
Scientists may start telling the truth about anything!
The rich, hot, divorcee next door may decide to fall in my lap and leave 5K on my bedstand...
Something makes me think Tall Tom would advise me not to hold my breath on this one.. Good Advice too.
to Amerikan patriot
Was it your superior who handed you the file with this nonsense during your morning roll call? Are you in jail or in the NAVY?
Just remember this and tell your boss: Russians love Russia unconditionally, regardless of the oil prices or the state of the Russian economy. Even more, the harder the times - the more Russians love Russia. That's how it has been for the last 12 centuries.
Russian people voted for Putin, because he proves time and again that he, also, loves Russia.
People still remember the 90s horrors of the occupation of Russia by the West. Back then people believed that the WEst had something good to offer. Now, everybody knows that THE WEST only takes away. The sanctions, the insults, the humiliation, the NATO troops in Ukraine, the low prices of oil and gold, the trolls like you by 100,000s spiting venom - the war on Russia and the Russians. Next, genocide of millions of Russian people like in East Ukraine, so the west would use the the Russian resources for free.
no, thanks.
Russian people 'voted' for Putin based on information obtained from the Russian state-controlled media?
Hmm, interesting point, Bob.
Dude is spot on....
If any of you are real traders and have been watching these markets for an extended period of time....
What do you expect....
We burn the shit up for christs sake...
How could it be worth 100/ barrel??????
Now we will find the real economic cost....
Some will go belly up but most will cope and advances in technology could vbery well make this look like a crazy time in the world of oil and we may not see 100 buks for 25 years.................
Very possible......
You peak oilers gore luvers can kiss my ass......
That dude has done more to maximise the oil regimes profits than any single person in the world!!!!!!!!!!!!!
Wonder who really pays hios paycheck???
Any bets that somehow exxon mobile has money going there????
Dont be stupid....
Who do you think financed the earth firsters in the 90's to quit logging????
Could it have been the timber companies with junk timber on their ground???? Watching their timber values fall because of all the good federal timber on the market?
What is better than to get a good touchy feely political movement to quadruple the value of your junk trees????
Think about it..... I know.... I was there......
What do you consider a junk log?
Each year a small handful of Lee Harvey Oswalds emigrate to Russia, whilst many thousands more leave Russia's shores for the fruitful blessings of the United States.
However, if Russia is the promised land with a vigorous, stalwart patriot as its proud leader and America is a wasteland with a lunatic at the helm, why are these fools doing this to themselves?
Go back, go back!!!
Sorry Zero Hedgers, you're too easy to have fun with! :-)
to Amerikan Patriot
The U.S doesn't issue green cards , refugee status, or citizenship to the Russian nationals. People who are called "Russian" emigrants to the US are actually Ukrainians, Jews, people from the Baltics, Georgians, Armenians, Belarusians, but not Russians.
My wife emigrated to the United States from Russia, Bob, and she was issued a green card (permanent resident card).
Now, I'm sure you're a fine fellow, but you're also full of shit.
They tried to globalize too quickly. We don't have the capacity, or the infrastructure, to be a truly global economy.
Too many countries need to catch up, and too many others are trying to drag everyone along much too hard and fast. It can't and won't work.
We all need to take a deep breath, and start taking care of business at home, wherever that may BE. Only THEN can we presume to set up a "Global economy"...
Here is how oil things go bad, and how fast: my family was so successful in their 40 year long Continental Illinois Bank investment, and so close in their relationship with CEO Walter Cummings Sr., that in 1983 they weren't looking for any of the bank's oil or other impending problems of whatever sort: while the details of ConIll's purchase of the bad Penn Square Bank oil bonds wasn't known, the ConIll stock was already telling the upcoming story and discounting the trouble ahead, way before many 'insiders' could focus in on the collapsing circumstances.
Just sayin', I've been there, done that, gone through and been surprised by what Nick Cunningham is saying could happen next in today's oil debt market, and to some banks; similar trouble was out there hiding in plain sight in 1983-84, and could well be about to become apparent again:
From Wikipedia:
"Insolvency[edit]
In May 1984,[5] Continental Illinois became insolvent due, in part, to bad loans purchased from the failed Penn Square Bank N.A. of Oklahoma—loans for oil & gas producers and service companies and investors in the Oklahoma and Texas oil & gas boom of the late 1970s and early 1980s. Due diligence was not properly conducted by John Lytle, an executive in the Mid-Continent Division of oil lending, and other leading officers of the bank. Lytle later pleaded guilty to a count of defrauding Continental of $2.25 million and receiving $585,000 in kickbacks for approving risky loan applications. Lytle was sentenced to three and a half years in a federal prison. The Penn Square failure eventually caused a substantial run on the bank's deposits once it became clear Continental Illinois was headed for failure. Large depositors withdrew over $10 billion of deposits in early May 1984.[6]
Few people remember or have heard of Continental Illinois but its collapse was both fast and big. Those of us who have had the misfortune of losing a lot of money fast will tell you we never saw it coming or that it got far worse than we envisioned in even our worse case scenario. Sure they talk about diversifying but often even this recipe is not guaranteed to protect you. Let me make it crystal clear, once it is gone it is to late.
Way back in 2008 when the meltdown was just starting I found myself on a cruise ship in Greece where one of my fellow passengers who had embarked on this strategy was withering in pain. We are often lulled into complacency and told how markets are regulated and precautions have been put in place to protest us. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/03/losing-it-all-with-no-hope-of-rec...
It might spark a crisis over debt or it might spark a crisis if the margins shrink and supplies become a problem. Crude oil is one thing, but refined gasoline is another. If refiners can't make a profit they will shut down which will potentially cause shortages.
I think this is the result of two coincident but unrelated causes. The end of QE (no easy money to speculate with) and also a policy to try and break Russia financially because of their efforts to undermine the dollar.
We're still the big bullies on the block.
QE really hasn't ended, they just use currency swaps and other accounting gimmicks, but so much money has been created, it isn't to big a problem for the fed. MZM is somthing like $13.7 trillion!
There is something in the air.
A "financial crisis" could be closer that anyone would like to think. The US debt over the GDP without anything else figured in is bad enough.
A market inflated to just shy 18000 that is mostly a wet paper bag.
Crude down low.
Kiting borrowed money to pay borrowed money.
Then I go to check out some more "food storage" stock as I have done for the last couple of years and for the first time, at site after site I see "OUT OF STOCK".
Not just one or two items but rows of items.
Yeap, a crisis is coming and more people are starting to feel its hot breath on their neck.
If oil prices stay at $65 per barrel for three years
Can we please have a more ridiculous assumption and then a meaningless "then" discussion!
We're all gonna die, because reason #4378.
I just hope Putin keeps pissing everybody off.
The Wall Street Journal = The Wall Street Urinal
When financial problems occur in the energy sector it is often accompanied by political instability and sometimes her ugly sister war. As a rule the economy loves stability, bottom-line dropping oil prices means more risk for an already shaky world economy. All this is being complicated by the recently strong dollar. The dollars strength and the rising American stock market could also be taken as a sign of an unstable global economy.
When a strong shift in currencies occurs someone usually gets hurt and this can lead to bankruptcy, default, or contagion. A great deal of the shadow banking world overlaps and falls into the grey world of derivatives. The total derivatives market has grown to a massive size. It includes hundreds of trillions of dollars in over-the-counter non-reported agreements and private contracts and is estimated to be over 20 times larger than the global economy. Everyone paying attention knows that even a slight problem in a market this size could collapse the whole economic system. The article below delves deeper into the problems caused by falling oil prices.
http://brucewilds.blogspot.com/2014/11/dropping-oil-prices-increase-risk-to.html
We balied out some folks....choked hold and strangled some folks......
WTF? We are in the midst of a financial crisis! Where has this tool been?
WTF? We are in the midst of a financial crisis! Where has this tool been?
"we are far from a crisis at this point"
Really?!