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Posts on ‘March 25th, 2016’

The downside of cheap oil

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By Ed Crooks: 25 March 2016

Probably the greatest puzzle of the oil crash is why it hasn’t done more to strengthen global growth. The shift in purchasing power from companies and governments of oil-producing countries to consumers puts money in the pockets of people who are more likely to spend it, and that should act as a stimulus. It hasn’t quite worked out like that.

This week the FT launched a series titled ‘Lower for Longer’ exploring some of the reasons why. Number One on the list of likely explanations is the mountain of debts the industry built up during the boom times. Oil and gas company debt almost tripled from $1.1tn to $3tn between 2006 and 2014, according to the Bank for International Settlements, which has done some important research on the issue.  The oil industry, energy markets and the world economy are all struggling with the burden of that debt: the hangover after the oil investment boom of the past decade. Investors have lost at least $150bn in oil and gas company bonds, and over $2tn in equity values. read more

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