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.
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