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Despite Lifting Of Export Ban, Moody's "Bombshell" Sparks Panic In Energy Credit Markets

Tyler Durden's picture




 

The Senate and House passed the spending bill this week, which the President signed into law on the same day. Embedded in the law is a provision to lift the 40-year old crude export ban. The lifting of the crude export ban is a historic milestone, but seemingly less relevant for US E&Ps, Midstream and Oilfield Services as compared to a year and a half ago when WTI-Brent spreads were close to $9.00/bbl vs. the current spread of $0.80/bbl. Nevertheless, there is still a negative long-term impact on refiners should spreads re-widen.

As BofAML notes,

Moody’s dropped a bombshell on the market this week as it lowered its oil and natural gas price deck and subsequently placed 29 investment grade and BB rated US E&P companies under review for possible downgrades. The review reflects Moody’s expectations that industry fundamentals will remain weak through at least 2017. Moody's expects to conclude most reviews over the next several months. Companies may be downgraded 1-2 notches and some ratings could be confirmed as well. Moody's continues to assess single B and lower rated companies. We believe the price deck outlook will also have ramifications for Oilfield Service Ratings.

Looking into 2016, we expect additional downgrades, which could lead to $30bn+ of Investment Grade Energy bonds falling into the High Yield Index if prices remain weak. Notably S&P and Fitch would have to take similar actions for falling angel scenario to play out.

 

US high yield energy underperformed this week The BofAML US HY Energy Index sharply underperformed the BofAML US HY Master II Index this week, returning -5.4% vs. -1.4%. The underperformance was led by E&Ps and OFS, which returned -8.1% and -4.3%, respectively. Midstream & Distribution and Refining underperformed more modestly, returning -3.0% and -1.7%, respectively. Within the high yield energy space, single B rated energy performed the worst returning -6.7%, with by C rated and BB rated, returning -6.1% and -4.5%, respectively. These returns significantly underperformed the broader high yield market as C, single B and BB rated high yield returned -2.4%, -1.3% and -1.1%, respectively. Energy equities also significantly underperformed the broader market driven by E&Ps, Midstream MLPs and Oilfield Services returning -10.7%, -6.6% and -5.5%, respectively, vs. -0.5% for the S&P 500 while Refiners underperformed less dramatically, returning -2.9%.

 

The news this week that Moody’s has made a sharp reduction to its oil and natural gas price assumptions is a pre-cursor to a series of negative credit rating actions, in BofAML's view. They anticipate a combination of outright downgrades and/or changes in outlooks to negative that could exaggerate the spread widening seen among investment grade producers over the past few weeks.

In other words, the credit crisis just spread contagiously from HY to IG...

 

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Sat, 12/19/2015 - 19:57 | 6944308 ShortTheUS
ShortTheUS's picture

BBBombshell

Sat, 12/19/2015 - 20:27 | 6944431 secretargentman
secretargentman's picture

It seems like just yesterday people were worried about energy independence. Now we'll be an oil producing and exporting country.

Sat, 12/19/2015 - 20:35 | 6944455 CHoward
CHoward's picture

Yet, we still import a lot of oil.  Go figure.

Sat, 12/19/2015 - 21:03 | 6944532 Arnold
Arnold's picture

Refined and exported.

Still wondering where those U turn diesel carriers will end up.

Sat, 12/19/2015 - 22:37 | 6944816 El Oregonian
El Oregonian's picture

We're having an oil stigmata....

Sat, 12/19/2015 - 20:02 | 6944332 turnoffthewater
turnoffthewater's picture

BERKSHIRE HATHAWAY INC is the largest shareholder of Moody's. Is that Warren's little secret. Hmmm...

Sat, 12/19/2015 - 20:18 | 6944354 DormRoom
DormRoom's picture

Saudi Arabia's lower oil for longer policy is to destabilize Iraq so it can gain control.  It is doing it in 2 primary fronts:

 

1)ISIS via the proxy war in Syria, but ultimately about setting up a caliphate whose territories cover Iraq's major oil regions.

2)lower for longer oil prices.  Iraqi's new government needs 90 USD/bbl to balance its budget.  Lower oil prices weakens the Iraqi government, and primes it for regime change.

2a) A weakened Iraqi government is then targetted by ISIS. //At current oil pricees Iraq can't afford it's security budget, and provide basic social services, precursors to a failed State.

QED: The new caliphate encompasses Iraq, but is controlled by Saudi Arabia.

 

Lower oil for longer is to destabilize Iraq, and its a regional power move with the added consequence of making the West + China more dependent on Saudi and not Iranian controlled oil, so the blowback is minimized.

Sat, 12/19/2015 - 20:29 | 6944436 Calmyourself
Calmyourself's picture

That is concise and probably at least partlly true, the other puzzle piece is US weakens Russia via Qatar/Israeli gas to Europe.

Sat, 12/19/2015 - 20:30 | 6944437 Gregory Poonsores
Gregory Poonsores's picture

Hasn't Saudi output fallen for 3 or 4 months now and Iraq was up 250k in the last month alone?

Sat, 12/19/2015 - 20:17 | 6944395 nmewn
nmewn's picture

Moar money for Buffet owning all the railroads on the Monopoly board!

Egggselllent ;-)

Sat, 12/19/2015 - 20:19 | 6944405 knukles
knukles's picture

Yeah, but what did Bammy card today?

Sat, 12/19/2015 - 23:19 | 6944893 Geezer Oil Trader
Geezer Oil Trader's picture

In the 80s, when I was trading "cert" barrels and everyone had a Lear or a King Air with the company logo on the tail, we grooved to Kim Carnes' "Marvin Davis Eyes" and "high yield" meant what you did with an aggressive big titted dancer at Elan at about 3 am in the parking lot while the Chrysen guys tried to see through the fogged window and giggled like school girls.

Sat, 12/19/2015 - 23:52 | 6944968 Barrack Chavez
Barrack Chavez's picture

If Zerohedge had kindly mentioned that this babble came from BofA Merril, I wouldn't have had to waste time clicking thru...

Sun, 12/20/2015 - 08:33 | 6945446 Last of the Mid...
Last of the Middle Class's picture

Just an attempt by the 1% to stabilize energy prices once again using their congressional lap dogs. Slow motion collapse will continue Monday.

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