Now that glut oil has caused prices to crack below $ 30 per barrel, the downturn is exacerbating the energy industry and lending more credit. Major oil companies have disappeared and those that have not heard enough financial stress from spending and reducing tens of thousands of jobs.
Three major American banks warned last week that oil prices would continue to create a headache on Wall Street - especially if the $ 20 or even $ 10 deal ceases.
For example, Wells Fargo (WFC) has spent more than $ 17 billion in loans to the oil and gas industry. The bank is setting aside $ 1.2 billion in savings to recover losses due to "a sharp deterioration in the energy sector."
JPMorgan Chase (JPM) has set aside an additional $ 124 million to cover possible losses in its oil and gas loans. It warned that the number could rise to $ 750 million if the price of oil unexpectedly remains at their current level of $ 30 for the next 18 months.
The "biggest stress area" is the oil and gas space, Marianne Lake, JPMorgan's chief financial officer, told analysts during a phone call Thursday. "As oil prices decline, we expect to see another reservoir rebuild in 2016."
Citigroup (C) has created a loan deficit savings in the energy space by $ 300 million. The bank said the move reflected his view that "oil prices could remain low for a long time."
If oil stays around $ 30 per barrel, Citi is looking at a nearly $ 600 million loss in electricity loan losses in the first half of 2016. Citi said that figure could cost up to $ 1.2 billion if oil goes down to $ 25 a barrel there.
More oil companies will die
The oil accident has already led 42 North American oil companies to file for bankruptcy since early 2015, according to a list compiled by Houston law firm Haynes and Boone. It just might be wrong. The standard estimate by the Poor that 50% of power bonds are "offended," meaning they are in danger of being grounded.
"There is a lot of stress in the industry. There will be a lot of pain but they will get through it," said Buddy Clark, a 33-year veteran of the money laundering and partner at Haynes and Boone.
The financial crisis has been so great that there is now a complaint of collateral for the American oil industry, though obviously any help will spark opposition.
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