Friday, December 12, 2014

Oil Price Slump To Trigger New U.S. Debt Default Crisis As Opec Waits

Via The Telegraph:

Falling oil prices and and U.S. shale drillers drowning in a sea of debt could be the spark for a new credit crunch.

Remember the global financial crisis, triggered six years ago when billions of dollars of dodgy loans - doled out by banks to subprime borrowers and then resold numerous times on international debt markets - began to unravel and default?

Stock markets plunged, banks collapsed and the entire global financial system teetered on the brink of catastrophe.

Well a similarly chilling economic scenario could be set off by the current collapse in oil prices.

Based on recent stress tests of subprime borrowers in the energy sector in the US produced by Deutsche Bank, should the price of US crude fall by a further 20pc to $60 per barrel, it could result in up to a 30pc default rate among B and CCC rated high-yield US borrowers in the industry.

West Texas Intermediate crude is currently trading at multi-year lows of around $75 per barrel, down from $107 per barrel in June.

"A shock of that magnitude could be sufficient to trigger a broader high-yield market default cycle, if materialised", warn Deutsche strategists Oleg Melentyev and Daniel Sorid in their report.

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