Commodity Trade Mantra

Posts Tagged ‘Oil Glut’

Commodity Markets In Distress As Oil Rout Continues

On the whole, 62 US oil and gas companies own $235 billion of debt, and at least 10% of that is at a distressed level. JPMorgan has set aside $140 million for potential write-downs in the coming months, with other banks doing the same. Everything is looking rather ominous. While oil producers get pummelled, miners get mauled.

The Oil Glut And Low Prices Reflect An Affordability Problem

There has been a belief that oil supply decline will come by way of high oil prices. Demand will exceed supply. But it seems that the decline in supply will come through low oil prices. The oil glut seen now reflects a worldwide affordability crisis, which in turn keeps demand depressed. Lack of demand keeps prices low–below cost of production.

The Irony of a Debt-Fueled Oil Boom

The cash has already been drilled into the ground. Now it’s just a matter of getting the oil and gas out to service the debt. The more the price drops, the harder they have to try to increase production. This is the irony of a debt-fueled oil boom that turned into an oil bust: producers cannot back off regardless of how low the oil price may be.

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