Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Political Climate Shifting Against The Oil And Gas Industry

Commodities / Crude Oil Nov 10, 2015 - 12:41 PM GMT

By: OilPrice_Com

Commodities Oil and gas companies have had a tough time over the past year trying to weather the storm of falling oil prices. But the political and financial winds are moving in the wrong direction for the industry, raising more "above ground" problems at a time that they can ill-afford it.


Drilling oil and gas wells requires a lot of money. For companies that have seen their revenues vanish because of collapsing oil prices, access to credit is obviously critically important. But U.S. financial regulators are growing concerned about a pile of energy debt that is deteriorating in quality. A report from the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency and the Federal Reserve singled out the oil and gas sector when it concluded that credit risk was rising across the United States.

For example, there is at least $34.2 billion in loans in the banking sector that have a credit rating suggesting they are "substandard," "doubtful," or "loss." That figure is up from just $6.9 billion in 2014. Put another way, about 12 percent of all loans to oil and gas companies are rated "substandard" or worse.

Low oil prices are undermining the ability of some companies to pay back their debt. However, increased oversight from banking regulators could force banks to take corrective measures, which could mean reducing their exposure to high-risk energy debt. Such a development does not bode well for oil and gas drillers. Tighter credit conditions – which could also be impacted by a pending rate increase by the Federal Reserve in December – will make drilling more expensive.

In the political arena, things are not any better, with last week being a particularly rough one for the energy sector.

First, the attorney general in New York announced an investigation into ExxonMobil, for what it sees as evidence that the company lied about the dangers of climate change. The probe comes on the heels of reports from InsideClimate News that the oil major's own scientists knew about the threat of climate change decades ago. But, according to the report, ExxonMobil buried the science and instead began funding think tanks and scientific research to sow doubt about climate change.

Critics of ExxonMobil have called for an investigation by the U.S. Justice Department, a chorus that includes three democratic presidential candidates and a growing number of members of Congress. But the NY attorney general investigation has taken the scandal to a new level. Att. General Eric T. Schneiderman subpoenaed financial records, emails and other documents from the Texas-based oil major. The investigation, as The New York Times put it, "focuses on whether statements the company made to investors about climate risks as recently as this year were consistent with the company's own long-running scientific research." ExxonMobil confirmed receipt of the subpoena and was still forming a response on November 4. But Kenneth Cohen, vice president for public affairs at ExxonMobil, denied the allegations. "We unequivocally reject the allegations that Exxon Mobil has suppressed climate change research," he said.

Finally, President Obama rejected the Keystone XL pipeline on November 6, which will only come as news to readers living under a rock. The immediate reaction is to look at the effect on oil markets; analysis that has been beaten to death over the past seven years. Still, as of the fourth quarter of 2015, there's good reason to think that the rejection hurts oil sands producers because of limited pipeline capacity. Even Keystone XL's proponents agree. Joe Oliver, the former Canadian minister of natural resources and minister of finance under Prime Minister Stephen Harper, wrote in the Financial Post about the urgent need for new pipelines. He says that Canadian oil producers would lose $100 billion over the next 15 years if no new pipelines are built. The business atmosphere is likely to get much tougher for Canadian oil now that a new government has promised a more rigorous environmental review for pipelines.

But the political fallout from Keystone XL is probably more significant than the immediate effect on oil markets. The project was rejected because of its impact on greenhouse gas emissions, a potential precedent for climate change action. The world may look back on this point as the first in a series of moves in which fossil fuel projects must climb an ever steeper political hill in terms of gaining approval. As alternative energy projects become cheaper and cheaper, the political establishment is finding that taking on the energy industry is not as intimidating as it once was.

Bloomberg published a pretty glaring chart that sums up how the industry has for years overestimated its long-term prospects. Based on last week's developments, which included the launch of an investigation into the world's largest oil company and the rejection of the most politicized energy project to date, the "above ground" problems for the energy industry are growing much worse. That could complicate the future fortunes of oil and gas companies.

Article Source: http://oilprice.com/Energy/Energy-General/Political-Climate-Shifting-Against-The-Oil-And-Gas-Industry.html

By Nick Cunningham of Oilprice.com

© 2015 Copyright OilPrice.com - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

OilPrice.com Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules