What’s Going On With Oil?! “V” Or “U” Recovery?

What’s Going On With Oil?! “V” Or “U” Recovery?

Posted on Jan 9th, 2015

As active investors in Western Canada we cannot help but pay close attention to energy prices. Over the last four months, oil prices have come off significantly and many investors are still grappling with the impact this will have on the Western Canadian economy.

Cheap oil would normally boost the US economy, but 30 year treasury yields are dropping too, which indicates the opposite.

Source: http://www.zerohedge.com/news/2015-01-06/recovery-sp-500-loses-2000-level

High Yield rates in the energy sector are exploding.

Source: http://www.zerohedge.com/news/2015-01-06/crude-crash-crushes-credit-risk-wti-hits-47-handle-energy-spreads-top-1000bps

This seems to indicate the exit by credit investors from the energy space into something less risky which makes sense and may explain the first chart.

Lastly, in Canada, our anecdotal experience is such that senior credit in the energy related economies is backing away from new deals, which correlates with the low Canadian heavy crude prices.

Source:  http://www.zerohedge.com/news/2015-01-06/canada-heavy-oil-drops-below-35-rig-count-hits-record-low-january