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Impact of Recent Oil Price Development

05 December 2014 by pdonnat

“It will be important to assess the broader impact of recent oil price developments on medium-term inflation trends” ECB said yesterday. The short term impact on the credit market is already obvious in the US investment grade credit market. The inflation of the oil related credit spreads. The investment grade energy sector is 50bps wider since the oil dropped last Friday. RIG ( Transocean LTD ) is trading at 615bps (+150bps), TLM ( Talisman Energy Inc.) is trading at 450bps (+170bps) and NBR ( Nabors Industries Ltd. ) is trading at 360bps (+150bps). These companies have altogether 20BUSD of bonds outstanding. The situation points out the conundrum of the central bankers. They are actively easing the credit access for more private and public investments with the risk of bubble creation like the Shale Energy bubble. Avoiding deflation is the ECB mandate but creating a bubble is a risk of a larger forward deflation. Steering a tanker requires a forward-forward guidance.