Terror in Brussels

March 22, 2016 08:04 AM
Daily Energy Market Analysis

A terror attack in Brussels may slow momentum for crude oil as there could be a backlash on the demand side. Reports are saying that at least 13 people have died and several have been injured after two explosions ripped the Brussels airport. Then 90 minutes later, another explosion took place at a Metro station near the European Union headquarters in central Brussels--confirming fears that the attack may be ongoing. As details are filtering in about another terror attack, crude oil traders may pull back if they fear that this incident with cause a drop in demand.

Yet, if the market feels that this incident will have little effect on the psyche or travel arrangements of people, it may be sadly forgotten in the crude market. Oil dipped as the reports came in then, seemed to recover; we will watch developments as the day goes on.

Oil prices were gaining strength as it appears that OPEC and non-Opec members are close to hammering out the details of a production freeze. Saudi Arabia says they will agree to a freeze even if Iran does not join. Abdalla El-Badri, OPEC's secretary-general, according to the Financial Times, says, “Maybe in the future [Iran] will join the group. They have some conditions about their production.” The FT also reporetd that  Qatar’s energy minister Mohammed Bin Saleh Al-Sada said that "15 Opec and non-Opec countries--accounting for two-thirds of global oil output--have, so far, supported an oil freeze."

In the meantime, there are more worries about the stability of many U.S. energy interests. The FT reports that investors have suffered losses of at least $150 bollion in the value of oil and gas company bonds, as the slump in crude prices since the summer of 2014 has fueled fears of a wave of defaults in the U.S. and emerging markets. The 300 largest global oil and gas companies have also seen $2.3 trillion sliced from their stock market value over the same period, a 39% slide since oil began its decline, an analysis by the Financial Times has found. The losses show how intense the financial strain on oil producers from falling crude prices remains, in spite of the partial recovery in prices since January. Oil is still down about 65% from its June 2014 peak. 

The FT reports that banks have also been increasing their provisions for energy-related losses on their lending. With several banks having loans to the industry equivalent to more than 40% of their equity, lenders have tightened loan agreements with oil producers and capital markets remain closed to the lowest rated groups. More than $150 billion has been shaved off the value of 1,278 actively traded bonds denominated in dollars, euros, sterling and yen since Brent crude hit almost $116.00 a barrel in June 2014.

Borrowing by oil and gas companies has soared during the past decade. Their total debt, including loans, almost tripled from $1.1 trillion in 2006 to $3 triollion in 2014, according to the Bank for International Settlements. The borrowers with the steepest increase in debts relative to their assets include U.S. independent production companies caught up in the country's shale boom and national oil companies from emerging economies including Pemex of Mexico, Petrobras of Brazil and CNPC of China. A Must read!

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About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.