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On Fire

16 September 2019 by jbchevrel

Today the energy sector outperformed US CDS, thanks to soaring crude prices. Over the weekend, Iranian drones launched from Southern Irak (despite first claimed by Yemen Houthis) hit key Saudi oil facilities after flying over Kuweit. Those strikes triggered the biggest one-day rise in crude prices since 1991 Gulf War (it came +c20% before paring ~half, now +14% on Brent and WTI), as they removed c5% global supplies. In the US/Canada IG space, HES -11.5 APA -11 ECACN -9.5 led outperformance and the 14/125 best performing names in the index are energy-focused. In HY space too, WLL CHK RIG NBR led gains. The move in crude prices didn’t really impact positively the CDX EM s31 constituents that rely on oil exports. SAUDI logically underperformed, the 5y CDS is wider +5.5bp, followed by Qatar +3.5. In CDS index space, it is worth noting that the CDX HY outperformed CDX IG (on a 1:4 basis) by 4.5bp and the CDX IG outperformed the Main (on a 1:1 basis) by 0.7bp. This is based on our London close. The initial jump in crude futures had first reverted, but the prospects or prolonged disrupted supply has propelled prices up, after our close. For now, roughly half of the Abqaiq output is cut, and it may take months before Aramco operates Abqaiq again at its full capacity.