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Déjà Vu

14 November 2018 by lberuti

It is not 2015 all over again, when oil went from $100 per barrel to $42, but the roughly 25% fall in oil price from $86 per barrel to $67 since the beginning of October has eventually caught credit investors’ attention. Worries over rising oil production around the world and weakening demand from developing countries has just driven a 12-day uninterrupted fall which just ended today. Stockpiles are building, and producers are struggling to agree on production cuts. According to experts, supply will likely outstrip demand by early next year due to a potential cooling of the global economy and slower growth in China, which is in the middle of a trade war with the United States. On both sides of the Atlantic, the risk premia of oil companies have been remarked wider. The weakest American credits like Weatherford International or Transocean Inc have been impacted the most (+ 700bps at 2,457bps and +127bps at 535bps respectively over the last week), but even European names which are traditionally much more stable have seen their credit risk re-assessed. During the past week, Repsol is 19bps wider at 80bps, BP is 17bps wider at 62bps, while Equinor ASA and Total are 11bps wider at 35bps and 39bps respectively.