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The New Cartel Running The Oil Sector
Submitted by Michael McDonald via OilPrice.com,
As oil prices wallow near multi-year lows, it’s becoming increasingly clear that the new cartel controlling oil prices is not OPEC but world credit markets. From Saudi Arabia’s record $100 billion deficit to shale oil’s continuing reliance on cheap credit funding, it’s clear that no major oil producer or company in the world right now is economically self-sufficient based on oil revenues alone. This situation has left the flow of oil and the decision on when to stop pumping the increasingly tarnished black gold in the hands of banks rather than oil men.
The idea that bank loans to oil companies may be in trouble is not new but there are increasing signs of late that these distress energy loans could end up defaulting and leaving banks with a mess to deal with. At the national level, countries like Saudi Arabia won’t forfeit their assets to creditors of course, but their ability to keep running deficit funding is going to increasingly depend on bond market appetite for energy related debt. That could be problematic in 2016. With the Federal Reserve starting to raise interest rates, bond investors may find that they don’t need to invest in energy debt to garner yield as they have in 2015, and this in turn could start to crimp oil production.
Economists often like to cite cartels as having the power to control production, but at this point it looks like the only group with any ability to actually curtail (or expand) production are the major banks that direct capital market flows. Of course that production power is indirect, but it is real nonetheless.
Banks are not required to disclose the loans they hold to investors and Federal regulators don’t disclose this data either as it would potentially risk a run on certain banks, but regulators are definitely taking note of energy related loans in bank portfolios. That attention may start to change the lending game in 2016 as banks look to pull back from energy production. For some banks that are large enough, it is even possible that a broad pull back in lending could lead to markedly lower production levels across many U.S. firms in particular which in turn might help boost marginally prices. To the extent that banks act in concert to do this, the effects on prices might be more than marginal.
Some big banks have acted preemptively to dispel investor concerns over the size of their loans to banks. According to third quarter data, Citigroup holds $22 billion in energy loans compared to a total loan portfolio at the bank of $632 billion. JP Morgan Chase holds $44 billion in energy loans against a portfolio of $791 billion in total loans. Bank of America has $22 billion in oil & gas loans against a total portfolio of $886 billion in loans. Wells Fargo has $17 billion in oil & gas loans against a total portfolio of $888 billion.
The total amount of loans outstanding to the energy sector is a little under $4 trillion, so these banks make up only a small 3 percent of the total outstanding loan market. In fact, U.S. banks are currently only holding about 45 percent of the total U.S. loans to energy companies, with around 30 percent held by foreign banks operating in the U.S., and 25 percent held by non-bank entities like hedge funds.
But the banking market is very much an oligopoly and where the likes of Citi and Wells Fargo lead, smaller banks will follow. So far, banks have not been acting in a cartel like fashion and are more worried about their individual loans than they are coordinating credit decisions to try and help salvage loan recovery rates across the industry. But with the increasing chaos in the energy sector, 2016 could force banks to change their tunes as they did in the housing industry in 2009 which in turn would lead to a very interesting 2016 for energy prices.
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Hookers shouldn’t be running amok. They need a PIMP. ;-)
Looney
Financialization; coming soon to a sector near you.
Debt is destroying price discovery in oil markets.
Was planned. Just like the housing market to move assets from the private sector over to the quasi-public sector (GS, Blackrock, Carlyle, etc.) using off-shore creditors who don't know what to do with the shit except dump it when things go south.
What I want to know is which cartel is pumping the housing sector. Hmmm, or maybe they're linked?
"The index of pending home sales dropped 0.9 percent after a revised 0.4 percent gain the prior month, figures from the National Association of Realtors showed Wednesday in Washington."
ZIRP is allowing the banks to capture ALL industry. It's a hostile takeover of our economy. End the FED!
ron insana currently giving virutal portfolio advice - LIVE!
on his e-trade practice account? lulz
that dude cracks me up.
Banks have become victims of zirp fueled commodity speculators. If prices hadn't stayed so high for so long they wouldn't have thought those loans were good investments in the first place. Ironic zirp blowing up in their faces like that. It's a good thing the gubbermint made citi stop speculating in oil directly or they surely would have gone tits up for a second time.
Not ironic. I think it's planned. Like putting dogshit in a piñata.
Best description of Wall St. yet.
Almost ... if you have money, agree to be a servant of Wall Street and give your money to Wall Street, then they lead you to the pinata that shits fiat. You don't even have to hit it and it just covers you in fiat.
However, if you you do not submit, then you get covered in shit from wacking the other pinata described above.
NO! Zirp fueled commodity speculators are victims ... or will be. The banks are managing the situation and are, at least for now, in total control.
That could be problematic in 2016. With the Federal Reserve starting to raise interest rates, bond investors may find that they don’t need to invest in energy debt to garner yield as they have in 2015, and this in turn could start to crimp oil production.
With a properly managed MOE process, it is performance, not prediction, that is monitored.
Traders are free to make trading promises and get them certified. If their promise takes them into a market where they can't compete, they fail to deliver. That default is "immediately" met with a like interest collections on "new" trading promises. Promises in-process can complete delivery as contracted ... i.e. they don't get the rug pulled out from under them by the banks raising interest charges in mid-stream.
Interest collections don't wait for the Fed to predict it. They don't wait for the Fed to decide what to do about it. That automatic increase in interest collections immediately changes the due diligence of the trading decisions, and the activity is quickly, automatically, and naturally throttled back to sustainable levels.
Low priced oil - banking/finance is afraid to lend to oil producers because at these prices producers are operating at a loss.
High priced oil - they are afraid of lending to producers because the high price oil will collapse the economy again and producers take big hits and thus defaults.
Poor banking/finance :{
It has nothing to do with money and profit ... in the fiat money, post Glass Steagall world, the banks can create as much of each as they want out of thin air.
It is about using the banks to consolidate power.
Grandad - Banks can only pull money out of their a$$ and give it to someone if that someone can secure a loan. That is how all money is created get it?
The problem plaging the economy is there are less and less secure/ligitimate lending opportunities for banks to lend into thus DEFLATION!!!!
Wow. A real Deepest Pockets Banksters War?
Preposterous.
Priceless.
No shit, Sherlock ... what was your first clue?
While it was obvious in August of 2014 it took until now for someone to state the obvious in an article. And yet, there are bigger issues at stake here. Controlling commodity prices (up and then down) and wrecking monarchies is only part of it.
Trick question: And who runs the Banks?
[tick, tock]
Members of the Big Club. And we ain't in it.......
The Banksters ARE the oil men.
The gordian knot of Pax Americana :
The cross roads of Oil/Petrodollar/MIC big stick games...
Simple as that. All centred where Oil is 100 times cheaper to PRODUCE than elsewhere and thus constitutes the nexus of the export model of fossil fuel economy.
Come on ZH... you can understand that.
Its controlled by the current Oligarchy...which is 90% US based...Ya know the blue/Red/Libertarian Cabal...all in cahoots. And those Sauds and Israelis are just SURROGATES.
you assume that ZH is a spectator of the big stick games.
I must be getting old.. I remember a time when an Iranian gunboat firing missiles within 1500 yards of a US Navy Aircraft Carrier in the Strait of Hormuz would have popped the price per barrell at least $50. Now .. not so much.. I guess they will have to actually sink something to get things moving.
can you say, end of pax americana?
Or SA popping off one of those Neutron fire crackers someplace more strategic than Yemen and more important than a coke plant. Like across the strait of Hormuz.
Danger, Will Robinson!
It's common knowledge among economic historians that when banks come to control an industry through its need for capital funding, that industry is bound for the sewer. Because even as banks try to control their risk by demanding "best practices" from their borrowers, they prove that they rarely understand anything about the industry to which they are dictating terms. The results in agriculture, for instance, were to concentrate production in megafarms growing major commodity crops, without necessary diversification and with the results of soil degradation, rampant multiplication of pests, and destruction competition between too many farmers unable to differentiate brand or market niches.
If the banks are now in a position to dominate oil production, look out! They are certain to run that business into the ground as well. In a world that runs on oil, the results could destroy civilization.
Not just oil; a bankster just replaced the former board chairman at Freeport-McMorRan in Phoenix.
Sometimes The Dragon Wins.
Imagine what will happen when banksters stop issuing loans
collapse of economy
Nuclear wars
New Cabal strategy in future : Its either US or them(Russia)
to survive
But these foolish cabals will bring irradiated doom to themselves
-------------
Jesus cursed them (see Matthews) : Woe to you
The chaff is collected (in israel) & burnt in fire
The owners of fossil fuel based energy resources have been overcharging everyone (by an order of magnitude) for more than 60 years. The cost to repay direct damages are in excess of $200Trillion, but since the cost of energy is embedded into everything we buy, total damages are ten times that amount.
Word is getting out about Tesla and Keshe type devices. Imagine an electric car that needs no batteries and never needs charging, ever. Now scale that up to include all transportation energy, all manufacturing energy, and all household energy.
Nov. 2015
http://youtu.be/oHxGQjirV-c
At 3:21:01 to 3:21:20 Greer is looking for a legal team to take this case.
At 2:21:17 Financial crimes.