Energy shares may be poised for their longest losing streak since July – with the S&P 500 energy sector nursing a 2% decline so far this month – compounded by weekend news that Libya’s National Oil Corporation is now producing 560,000 barrels per day of crude oil, up from 540,000.
Crude prices have climbed nearly 12% since OPEC members agreed in Algiers last month to curb output. However, the oil cartel did not enumerate the size of the cuts by each member nation, and since the meeting, Iran has already said that it must be allowed to bring production up to pre-sanction levels before it curbs output.
None of this looks too good for OPEC cuts in November.
But at least there is a silver lining. Banks, already much-maligned during the 2008 financial crisis were expected to face disaster on their loan books this year in the wake of the two-year long oil price recession.
That was in January. Since then a sense of calm – or maybe even complacency - has set in over the state of the energy sector.
Back in February, when the stockmarket endured its year’s nadir, oil prices hit just over $27 a barrel – a 12 year low.
But in the past few weeks, oil prices have stabilised at the $50 mark.
And to demonstrate how much calmer the banks are, or just complacent, JPMorgan (NYSE:JPM) released $50mln in its oil and gas portfolio reserves, a sign that its risk managers are feeling less concerned about the sector.
This was all evident in the past few days as JPM, Citigroup (NYSE:C) and other banks reported. Citi certainly felt calmer about oil, while a $40mln drop in provisions related to its energy portfolio helped PNC Financial Services (NYSE:PNC) deliver a smaller-than-expected drop in third-quarter earnings.
Relief was also felt in the credit markets, where the risk premium investors demand to hold the debt of the lowest-rated energy companies receded to 5.9 percentage points above safer haven benchmark Treasury yields last Friday, the lowest level since late 2014 when the oil recession began.
The US oil benchmark, West Texas Intermediate was down 0.8% to $49.94 on Monday.