The OPEC decision not to cut production, leaving the market a surplus of supply of oil, could trigger a wave of defaults in the US, not only shale players but also major financial institutions that have invested in securities of energy companies, American analysts warn.
At the 166th meeting of OPEC in Vienna in member countries of the organization decided to maintain the current quota for oil production at 30 million barrels a day until the next OPEC meeting in June 2015. After the announcement of this news, oil prices tumbled to multi-year lows — below the psychological mark of $ 70 per barrel.
The shale revolution may not happen
This decision can affect not only the situation of the largest suppliers of oil, such as Russia, which is largely dependent on the price of the black gold. It is dangerous for America, which relied on the future of the "shale revolution", which may or may not walk through the world in 2016 (as planned), according to experts interviewed by CNBC.
The United States actively supported the construction of Europe's infrastructure for LNG. According to the research of the Center on global energy policy at Columbia University, the arrival on world markets of liquefied natural gas, including from the United States, had substantially reduced the revenue of the Russian "Gazprom" — by 30-40%. The European consumer due to the diversification of the energy market, increased supply and, consequently, lower prices could save up to 20%, experts of the Institute.
Since 2011, us energy companies invested in infrastructure development of its shale gas and oil reserves of about 1.5 trillion dollars. While the lion's share of the amount on the American market were debt securities issued by energy companies. Currently they account for over 15 % of the U.S. bond market, while ten years ago it was only 5 %, refers to its data CNBC.
"Production growth is very strong (shale gas and oil in North America), the debt situation in many of these companies is accompanied by many problems", — has commented on CNBC the drop in oil prices, a senior oil analyst at Sanford C. Bernstein Neil Beveridge (Neil Beveridge). According to him, the drop in the price of petroleum products increases the risk of bankruptcy of us shale players.
"The price of 68 dollars per barrel make their business unprofitable, uneconomical," he said. According to him, the inability to service the debt will lead to the fact that many shale producers will simply go bankrupt.
The gas company will pull a banks
Failure to ensure that debts may cause destabilization of the entire banking system of the United States. The fall in oil prices, therefore, will have a negative impact on the entire financial system of America, investment funds and banks. Because for them, investments in the shares of oil and gas companies and granting of loans was one of the main ways to maintain liquidity. "To get rid of these securities in the short term will be difficult. Investors very cautious approach to buying assets," reports CNBC.
By the end of trading Friday, the price of shares of Norwegian oil group Statoil fell by 7.34 per cent to NOK HR 132.5 (19,37 dollars) per share. The value of the UK oil and gas company BG Group has reached the lowest level since March 2009, dropping to 8,77% to 9 pounds (14.2 USD) per share. Shares of American SeaDrill — one of the largest owners of drilling rigs on the exchange in new York fell Wednesday 18% after news of the decision to abandon the payment of dividends.
In addition, according to the Financal Times, the largest banks, including Barclays and Wells Fargo may face and the potential very heavy loss for them, associated with the probability of loan defaults totaling 850 million dollars. The money had been issued to companies and Sabine Oil Gas and Forest Oil Corporation, based in the USA. To sell these banks debts are trying since the summer, but to do so in the present circumstances is almost impossible now, with reference to its sources edition.
John Kilduff (John Kilduff), partner of commodity investment firm Again Capital, does not exclude that the price will fall to 50 dollars per barrel. But, although highly leveraged shale players creates risk to the market, he does not share the theory of the end of the world. "But the signs of a real disaster there," he said.
"It's not an explosion, but the Canary in the coal mine already felt something was wrong", — commented on the situation with OPEC and the fall of the index securities of the largest oil companies Director of group strategy Newedge's Larry McDonald (Larry Macdonald). (In the U.S. one of the earliest ways to detect methane in the mine was used as analyzers of the Canaries, which are very sensitive to gases, and die from even minor impurities in the air — approx. ed.).
However, according to MacDonald, any investments in such high-yield securities have always been risky, since their price has not always been justified by market realities.
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