High Yield and Energy

Back in May I wondered if the shale boom could be a mirage (see here). It seems it may well be and judging by this chart a lot of the (hot) money that went into this space is going to get dissolved. Oil is down roughly 56% since June (you can see the real losers here – Canadian oil sands companies are slightly worse than the shale oil producers in terms of average cost of extracting a barrel of oil.) The number of rigs is also collapsing (see wolf) as companies try to stem the cash outflow. One of the quirks of the oil market is that some countries actually increase production as the oil price falls (as they need to produce more oil at the lower price to meet their budgetary commitments). More supply means more falls in prices leads to more production – seems odd and it is. Welcome to the whacky world of oil.

I have a scary feeling the collapse in oil could be the canary in the coal mine – steel prices are falling leading to shuttered steel mines and so on. Could be tin hats on soon (at least they ought to be getting cheaper!).