Energy |

Credit Crunch for Shale Drillers

Bloomberg reports on the long-awaited (yet still painfully slow) comeuppance for shale oil companies and the big U.S. banks who have lent to them. Of course, freakishly low interest rates that were too low for too long are in no way related to any of this.

This seems to be the new normal (that is, unless we get a huge rebound in oil prices):

Chesapeake Energy Corp., the deeply indebted shale producer, said that it can hang on to its $4 billion bank line as long as it posts just about everything it owns as collateral.

Unrelenting Oil Supply

They say a picture’s worth a thousand words and that axiom is demonstrated nicely by the blue bars in the chart below from this iMFdirect story about global oil supply.

As recently as 2014, OPEC nations seemed happy to reduce oil supply to support prices and, of course, back during the financial crisis, output was slashed before, during, and after the oil price bottomed out, but things are quite different now.

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Oppenheimer & Co. senior oil and gas analyst Fadel Gheit neatly summarizes what’s currently going on in energy markets at about the 1:40 mark below:

I believe there is an agenda here that Saudi Arabia will not allow oil prices to recover until they take care of marginal producers in shale plays in the U.S. … also, to settle their score with the Iranians and Russians.

Of course, it doesn’t help that the price of money has been distorted for so long that it’s become nearly impossible to determine what the price of anything else should be.

Oil Prices and Junk Bonds

Amid the “uneasy calm” in financial markets, as detailed by the Bank for International Settlements the other day in their quarterly report, comes news of an even deeper plunge in oil prices (with calls for $20 a barrel or below) and more distress in high yield bonds (an outsize portion of which is energy related). One of the driving forces behind these developments is the graphic below via this item at the WSJ.

I’d never seen these two curves side-by-side, but it tells a pretty compelling story about the global game of chicken now being played by the Saudis and shale oil producers in the U.S., importantly, along with their Wall Street financiers. Of course, it doesn’t help that the China slowdown appears to be for real and that central banks continued to be viewed as “the only game in town” when it comes to restoring the global economy to its former glory…

John Oliver Does North Dakota

This Last Week Tonight piece on North Dakota covers a lot of ground – from Midwestern culture vs. New York manners to the unintentionally comic Blood & Oil TV series and, of course, the shale oil boom that is, for the moment at least, transforming the area.

Don’t forget, season two of Fargo debuts tonight! Ted Danson?!? Murder at a Waffle Hut?!?

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