Boots & Sabers

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2041, 18 Jan 16

Oil Loans Going Sour

This is a big problem.

Firms on Wall Street helped bankroll America’s energy boom, financing very expensive drilling projects that ended up flooding the world with oil.

Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven’t are feeling enough financial stress to slash spending and cut tens of thousands of jobs.

Three of America’s biggest banks warned last week that oil prices will continue to create headaches on Wall Street — especially if doomsday scenarios of $20 or even $10 oil play out.


The oil crash has already caused 42 North American oil companies to file for bankruptcy since the beginning of 2015, according to a list compiled by Houston law firm Haynes and Boone. It’s only likely to get worse. Standard & Poor’s estimates that 50% of energy junk bonds are “distressed,”meaning they are at risk of default.

On the bright side, it does not appear that the banks spun out too many derivative financial products on these loans like they did with mortgages, but as long as oil stays so low, 2016 is going to be a rough year for the energy and banking sectors. On a side note, the fact that Obama’s deal with Iran lets them trade their oil on the global market again, thus adding more supply to the glut, will further aggravate this issue.


2041, 18 January 2016


  1. Mark Maley

    Odd examples of cheap fuel

    Airlines take prices up while their fuel costs drop substantially
    and WB gas stations
    Are cheaper than the area stations around them for the first time since the dinosaurs

    The first is collusion, the second is Quik Trip?

  2. Northern Pike

    So, protectionism for American oil producers is a justification to keep sanctions on Iran?

  3. Owen


    For the airlines, I suspect that their fuel costs have not declined very much because they pre-purchased for years on the futures marked hedging against the increasing oil prices of previous years. Their fuel costs lag the spot market.

    For West Bend, I think you’re exactly right.


    No, depriving Iran of oil revenues they use to fuel terror is the justification to keep sanctions on Iran. But their added oil on the market will have an impact.

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