After two bleak months, energy prices have finally changed course. WTI, diesel and Brent crude varied by 15%, 14% and 17% respectively in U.S. dollars in the final two trading days of last week alone.
- In a recent analysis, U.S. bank JPMorgan Chase & Co. (NYSE:JPM) examined the credit risk of companies in the energy sector. Interestingly, they project that if crude oil remains at $45 a barrel in 2016 and 2017, 30% of these companies will default. For reference purposes, since 1995, default rates only exceeded 10% in 1999 and 2009.
- On Friday, we learned that Venezuela and other OPEC member nations apparently asked for an emergency meeting of all members of the cartel and Russia in order to better control oil prices. Russia is not an OPEC member and since November 2014, crude oil prices have fallen by half due to the refusal by Saudi Arabia (the leading OPEC nation) to cut its production quotas. Since then, Saudi Arabia and other members of the cartel continue to pump oil at a record pace. Moreover, most producer nations currently have major budget deficits.
- With the recent rebound in fuel prices, it is recommended that you hedge a portion of your consumption for the coming months. Clients who already have hedging in place can take advantage of price volatility by placing orders on the market.
Have a great week!
Philippe Shebib