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Energy Bond Crash Contagion Suggests Oil Will Stay Lower For Longer
When we first explained to the public here, that the excessive leverage and currently squeezed cashflow of many US oil producers could "trigger a broader high-yield market default cycle," the world's smartest TV-anchors shrugged off lower oil prices as 'unequivocally good' for all. Now, as a 40% collapse in new well permits and liquidations occurring at the well-head, the world outside of credit markets is starting to comprehend the seriousness of the crash of a sector that was responsible for 93% of jobs created in this 'recovery'.
The credit risk of HY energy corporates has more than doubled to a record 815bps (over risk-free-rates) crushing any hopes of cheap funding/rolling debt loads. Suddenly expectations of 1/3rd of energy firms restructuring is not so crazy...
The chart above suggests another problem for hopers... credit markets - the most sensitive to cashflows at this stage - are signalling either prices have considerably further to fall or will remain at these thinly-profitable-if-at-all prices for considerably longer...
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There is a bigger problem though. As the following chart shows, there is clear 'selling' of high-yield bonds (and some hedging) which has crushed the most-liquid (HYG ETF) instrument for actual yield risk.
In other words, there is contagion and managers are rotating from protection to selling and reducing exposure.
Charts: Bloomberg
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Now, let's see the end game...
Got your PM's?
Market watch said lenders will be easy on forcing term covents
Right!
but the ball in the lendee's court
if prices drop enough they'll shut down (if production cost higher than price of barrel) and default ... no matter how easy the terms
Supply and demand means nothing in a world awash with central bank ponzinomics.
Exactly, time to pick up those energy stocks. After years of manipulation how can anyone not see the bailout coming. Take the easy money and run. This is becoming almost too easy.
Jlasoon......so what is the play for oil patch stocks.....Refiners? Pipelines? anyone feel free to jump in. always something gets thrown out with the dirty water that isn't that bad...yes?
I don't think you want to see the end there, big hands.
It's all Bullshit!!!! Blah, blah, blah. Every day it's something new that's going to crash the markets. Never does and the market has tripled in the 5 years the bullshit began.
You are corect. Low oil prices are not sustainable.
my classmate's step-sister makes $61 /hour on the laptop . She has been out of work for 5 months but last month her pay check was $12417 just working on the laptop for a few hours. browse around this web-site... www.yelptrade.com
i'm crossing fingers.
Keep it coming love
https://www.youtube.com/watch?v=hFnRqkax44Q
Tell that to Mr. Yellen
A recovery built on hopes of high oil prices forever is not a real recovery. Price discovery can happen in spite of market rigging. Even if this price drop is caused by market rigging it isn't bad for everyone. I thought ZHers expected a crash. So this can only be good. Let's get on with it.
looking forward to bargain RE in houston
The time might be coming soon enough:
The tubing and pipe inspections customers told me there would be layoffs coming soon and that there was to be no new drilling pipe required until June- according to their customers... a couple little customers: Shell and Exxon. So while we have remained relatively well off since mid 2009, (90% of all new full time jobs have been in the energy sector), it now looks as though we are going to revisit 2008. Time to go to VRBO and pick some places to pass the dead time.
Meh. 8 million barrels produced while ten million barrels imported. Only seven million consumed. That's a lot of refined product sloshing around. "Refining of everything" seems to be the way to go here.
Where did you get those numbers? Out of your ass?
http://ir.eia.gov/wpsr/wpsrsummary.pdf
Meh. 8 million barrels produced while ten million barrels imported. Only seven million consumed. That's a lot of refined product sloshing around. "Refining of everything" seems to be the way to go here.
I see China knows how to play chess too...
Obama’s Climate Deal with China Backfireshttp://wattsupwiththat.com/2014/12/05/obamas-climate-deal-with-china-bac...
China offered new details on its commitment to rein in greenhouse gases and called on rich nations to speed up delivery of the $100 billion in annual climate-related aid they’ve promised by 2020. Su Wei, China’s lead climate negotiator, coupled his comments on China’s commitment with a call to accelerate funding for climate aid, shifting the pressure to industrialized nations, led by the U.S. and European Union, to do their part toward reaching an agreement next year. The “$10 billion is just one 10th of that objective,” and “we do not have any clear road map of meeting that target for 2020,” Su said. Climate aid is “a trust-building process,” he added. –Alex Morales and Reed Landberg, Bloomberg, 5 December 2014
Rich nations’ pledges of almost $10 billion to a green fund to help poor nations cope with global warming are “far from adequate,” particularly Australia’s lack of a donation, the head of China’s delegation at U.N. climate talks said on Thursday. Su Wei also urged all rich nations to deepen their planned cuts in greenhouse gas emissions, signaling that a joint Chinese-U.S. announcement of greenhouse gas curbs last month does not mean an end to deep differences on climate policy. –Reuters, 5 December 2014.......
So, the price of a "private dance" in North Dakota is plummeting... which means more $ spent on Walmart trinkets = Bullish?
I don't know, wouldn't any portfolio look better with a fist full of Junk Bonds issued by Farckers? After all, the miracle is still a miracle. In fact, some information floating around the economic's publications is claiming Frack Wells may tapper off after three years, but Re-Fracking the same wells, apparently this is costless, will reinvent the well and another ocean of oil comes out. Though I have not seen much investment capital moving towards that information tibit that Fracking adovcates have latched onto when the arguments about fracking come up, like actual well-head prices paid to frackers, the leverage needed to fund the leases, the rigs, the man power, the trucks, the water, the chemical, the sand, the explosives, and other intangibles like interest on the Junk Bonds [higher than the going interest rates by far]. I refrain from accepting the Fracking miracle as of yet, this needs to play out over 10 years before any miracle can be declared.
Perhaps you have stumbled into the truth. An old addage, if there is no pain there is no gain. If I were to spend 100k to buy land and grow wheat the first years harvest would not pay for the cost of purchase, seed or harvest. However the next year I would see some cash flow. The following years I would realise real profits.
If I cannot make a profit each and every quarter I am clearly not a darling of (fill in the blanks) therefore nothing here to see, please move along. Yes I do want to invest in those companies who actually produce something that people need and understand that life is a long, and sometimes hard slog.
A giant BINGO to this " of a sector that was responsible for 93% of jobs created in this 'recovery'
Fracking was the engine that drove what real recovery we had in jobs, if Fracking fails as a miracle, then all kinds of drilling hands and truck drivers pulling in money at the top end of blue collar pay scales, will be shit out of luck. Stay tuned, the recovery was fake, and the only real recovery in jobs that frackers represented was Leverage and High Oil price based.
Imagine 100,000 highly paid blue collar types getting pink slips for Christmas. With many more to come, not to mention the Tar miners up in Canada. The most expensively large scale prodcued oil on earth
<http://www.thehillsgroup.org/depletion2_022.htm>
Bogus conclusion that fracker bond prices indicate a longer period of low oil prices. Based on what evidence? Manic markets are short term orientated. Those “managing” money for the most part don’t consider anything past the next quarter’s numbers and HFT types are focused on time periods considerably less. Wild volatility based on short term fear and greed indicates nothing about what is in store a year out.
Volatility:
commodities > equities > bonds
Bond prices normally don't move much based on short term changes of the related commodity or equity prices. If the price of Microsoft stock drops from $50 to $35, would their bonds have higher yields? Probably not. Maybe times are a changing
Will Big Oil pickup the fallen/ing fracking companies and land rights, or will China ?
I haven't seen big oil involved much in fracking. Most are smaller and some medium sized companies.
Something to consider...
We are in a period of technology innovations. It IS possible that oil may NOT regain its previous importance, and that the price may NEVER recover.
If in the next 5 years, something is developed that replaces the old internal combustion engine/oil fueled manufacturing system we now have, then oil could become virtually worthless.
These lower prices just might be deliberately encouraged in order to stave off any such developments. When prices skyrocket, not only do you get more fracking, but alternate technologies become economically feasible.
If there WAS some new technology out there that threatened oil, crashing the prices would be a great way to get that idea shelved for the time being. Who'd want to invest in that when oil is flowing like water, at ever-cheaper prices?
Possible but definitely not in the next five years. You have a billion IC engines out there for vehicles, planes, machinery, and boats. There are trillions of dollars invested in those. Any new technology will be expensive initially and will take a couple of decades to become cheap enough to be mainstream. The first IC engine vehicle was invented in 1826. The first electric vehicle in 1888. Look at how long it was before they became mainstream. Electric vehicles still aren't mainstream yet. Computers took decades to get to the masses. The problem with mass production of electric vehicles will be raw materials and dispoal of the toxic battery waste. When you're building 50,000 Lithium batteries for EV's a year, low demand keeps prices down. When you try to build 50,000,000 each year, where will the raw materials come from? The largest lithium deposits in the world are in Afghanistan and Central Asia. Not exactly friendly places for Westerners