Oil Re-Bloodies the “Smart Money”
The “liquidity death spiral.”
Oil plunged again on Monday, with West Texas Intermediate down over 4%. At $45.17 a barrel, it’s just a hair away from this year’s oil-bust low. During 8 weeks in a row of relentless declines, WTI had plunged 26%. July’s 21% drop was the largest monthly decline since the Financial Crisis collapse in 2008.
There’s a laundry list of perceived reasons: The rig count has been rising again. Shale oil companies, like Whiting Petroleum, are bragging about “record” production to prop up their shares. Production in Russia has been strong. And OPEC, powered by Saudi Arabia and increasingly Iraq, raised production in July to 32 million barrels per day.
There’s the dreaded surge of Iranian oil onto the world markets. Just this weekend, Iran’s oil minister mused that his country could raise oil production by 500,000 bpdwithin a week of when the sanctions would be lifted and by 1 million bpd within a month.
It gave oil markets the willies. They were already fretting over the slowdown in China, the crude oil inventories in the US, at a record for this time of the year, the oil inventories in other developed markets, and even oil stored in leased tankers. Oil everywhere, it seems.
Whatever the perceived reasons, the price of oil has gotten re-crushed, and so has the hope a few months ago that this would be over by now.
Moody’s is ringing alarm bells over a wave of defaults among US oil and gas companies: “The energy price slide continues to create operating and liquidity pressures for the oil and gas sector, which contributed to seven of the 15 defaults recorded and accounts for a large share of companies with low ratings and weak liquidity.” And it expected the energy sector “to be a primary driver of defaults over the next year.”
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