What happened the last time oil fell this low?
Well, here's an interesting chart that gives you one possibility. We're not saying that this is ahead, but with the Fed cocksure on raising interest rates soon the timing could be exactly right for the Fed to do precisely the wrong thing.
Recall the ECB was still hiking interest rates while the U.S. was lowering them before the last recession became the news of the day .Check out action in the oil patch bond market on Monday as the WSJ reports.
A fresh wave of selling hit energy-company bonds, reflecting a growing consensus that slumping commodity prices will push many heavily indebted firms into default.
Bonds from Chesapeake Energy Corp. , which is looking to restructure some of its debt through an exchange offer, traded at 32.8 cents, a decline of 17%, according to data from MarketAxess Holdings Inc. Oasis Petroleum Inc. bonds shed roughly 6% and traded at 79 cents. A bond from EP Energy LLC traded at 80 cents, down about 5%.
The selloff marks a sharp shift in Wall Street sentiment from earlier in the year, when investors piled into energy-company debt and firms sold new bonds as the price of oil appeared to stage a comeback.
But with oil prices plunging anew after the Organization of the Petroleum Exporting Countries decided Friday to keep pumping crude at near-record levels, many firms’ bonds have begun trading at levels that suggest a reckoning is at hand. Crude fell $2.32, or 5.8%, to $37.65 a barrel on the New York Mercantile Exchange.
Maintaining the ability to borrow money at reasonable terms is crucial to many low-rated energy firms, which need to raise cash to retire debt and pay for new infrastructure. Analysts say losing access to the capital markets could accelerate some firms’ slide into bankruptcy, though a wave of defaults wouldn’t necessarily provide immediate relief for the industry’s supply glut.
Recessions bring on unrest and unrest begets conflict. And conflict could be just what the doctor ordered.
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