Home

The oil price war is creating problems for finance. The fracking boom made financial sense when oil prices were over $100 and interest rates were low. As the oil price war lengthened from a skirmish into a prolonged conflict, it became less profitable to frack. With oil now below $40, several countries that depend on oil revenues are having trouble with their budgets and several corporations were approaching bankruptcy. Those companies are also being hit because it is harder for them to raise money. The interest rates they must make available are higher to account for the risk. The number of investors are diminishing as socially responsible and risk-averse institutions divest from fossil fuels. And then the US Fed raising interest rates creates a competitor for the investors. The impact on the oil companies was contained, but because many bond firms were invested in the oil companies the disruptions are spilling over into bond firms. Closures have already begun. The hope is that the influence is contained. The worry is that previous asset group collapses have triggered recessions, and if this triggered a recession while interest rates were high, that could worsen the recession. Cascading failures happen.

(Click on the photo for the link.)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s