Banks Will Feel Pain Once Crude Oil Price Fall Below $50 bbl
$DIA, $SPY, $QQQ, $RUTX, $USO, $VXX
- The S&P 500 gained 1.1% Thursday to snap a 5-session losing streak. US-China trade optimism and strength from tech stocks,
Banks can handle the energy-linked loans they have extended just as long as Crude Oil prices don’t drop much below 50 bbl, analysts are saying.
Credit losses “may be fairly limited,” as most energy companies should see no major operating issues with WTI Crude Oil above 50 bbl, and underwriting has tightened, Morgan Stanley wrote in a note to clients Wednesday.
If prices drop below 50 bbl investment may slow “meaningfully.”
Below 40 bbl, watch out: “The environment could become quite challenging for the energy industry.”
Morgan’s annalist flagged BOK Financial Corp., Cadence BanCorporation, Cullen/Frost Bankers Inc., CIT Group Inc. and East West Bancorp Inc. as among banks with the largest exposure to energy, along with Texas Capital Bancshares Inc. and Bank7 Corp..
Crude Oil trading in the mid-50’s bbl is not a cause for concern, as leverage has been greatly reduced in most banks’ energy lending practices in recent years. The banks would be more worried if Crude Oil fell below the mid-40’s for a prolonged frame.
Thursday, WTI Crude Oil finished at: 56.44 bbl
Banks’ other businesses may get a boost from falling energy prices.
Deutsche Bank chief international economist said Wednesday wrote that “lower Crude Oil prices will extend the economic expansion further,” because they offer “good news for consumers and for energy-consuming companies.”
The bank’s analyst added that a higher USD will be holding down US inflation “at a time when the economy is close to overheating.” That may be “exactly what the doctor ordered for the US economy if you want the expansion to continue and the Fed to be gradual.”
Thursday, the major US stock market indexes finished at: DJIA +208.77 at 25289.27, NAS Comp +122.64 at 7259.24, S&P 500 +28.62 at 2730.34
Volume: Trade on the NYSE came in at 951-M/shares exchanged
- NAS Comp +5.2% YTD
- DJIA +2.3% YTD
- S&P 500 +2.2% YTD
- Russell 2000 -0.7% YTD
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