Falling crude starting to hurt corporate bond issuers – S&P

Amid growing global supplies and weakening demand for oil from the emerging markets this year, the price of crude has been falling quickly and dramatically in the second half of 2014, and few are expecting a correction to occur anytime soon.
With falling prices come falling revenues for the oil exploration and refining companies and the distributors, and this has quickly translated into stressed market conditions for issuers in this sector, as well as a sell-off of their bonds in the US, said an article published Tuesday by Standard & Poor’s (S&P) Global Fixed Income Research, titled ‘Falling Oil Prices Are Starting To Hurt Corporate Issuers And Their Bonds, But Defaults Are Still Muted.’
Well ahead of the overall bond market volatility seen in September and October, the price of oil has been in free-fall since June,” said Diane Vazza, head of S&P Global Fixed Income Research.
“The price of a barrel of Brent crude has plummeted from its high of $115/barrel on June 19 to $70.54 as of December 2. This is nearly a 39 percent drop in less than six months. And the outlook, based on futures pricing, does not portend a large reversal anytime soon. In fact, futures prices for the end of 2015 are only $76.29 – up 8 percent from their current levels – with the longer-term outlook still well below the levels seen before the recent drop in the second half of this year.
This puts increasing pressure on corporations and governments whose budgets are based on oil price assumptions. It also will likely put a damper on production growth and development of new extraction sites in the coming months.”