How Cheap Oil Could Kill The Banks

Energy prices continue to wallow near decade lows, with no real visibility on when that might change.

And while that's good for consumers and businesses that rely on cheap fuel, it also tells a story about a weak global economy that doesn't seem to be getting any stronger. And there's a bigger shadow this energy issue casts.

There's plenty of oil out there and Iran is about to come on line, adding to the glut. And the US in another case of bizzaro-world counter intuitiveness, just lifted the 40-year ban on domestic oil exports.

Now US producers can export oil internationally.

What is the point? Well, in Washington, DC, that's precisely the point. You don't pass this kind of legislation when it's important to pass it, like when oil prices are high. You wait until no one is looking and no one cares – remember it's an election year, so there's no opposition - and it's sitting on the books when you want to use it.

Basically, it's a kickback to big oil companies from Congress for all their support, while no one is looking.

According to oil services firm Baker Hughes, there are 871 wells in operation

in the US right now; last year at this time there were 2266. I don't think US drillers will be exporting any time soon.

Also, there's a more disturbing implication for what this oil glut is doing. But it's not energy firms that are the prime targets; it's the banks.

On Maria Bartiromo's FOX Business show, a hedge fund manager was talking about how the next shoe to drop in the energy sector is the financial sector.

His prediction was that 25-30% of today's oil and gas companies will be bankrupt in the next 3 years. And the bag holders will be the banks that are holding their defaulted loans and lines of credit. And this is partly to blame for why the high-risk credit market is starting to fall apart.

But we're only at the tip of the iceberg. If the US loses all these energy sector firms we could see another collapse the size of the last financial crisis.

Given the bad shape most major banks are in even now, this could be a death blow for some of these 'institutions' and an economic tsunami for all of us.