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Rising Debt for Emerging Market Oil Industry Suggests More Near-Term Oversupply

hb-recommended-linksDebt could be the undoing of emerging markets oil companies. Conventional wisdom says they should reduce production to support energy prices, but the necessity of servicing their debt in a timely manner dictates they pump more oil to maintain cash flow and also market share, which obviously impacts the supply and demand outlook for energy.

Futures contracts for WTI Crude Oil through the early part of 2017 are priced at a small percentage variance above the ┬áspot market. The spread doesn’t imply much upside when one takes into account storage costs. The market doesn’t seem to have a lot of confidence, at least for now.

And, when the Fed actually does begin to ratchet up interest rates, will emerging markets be prepared to withstand the onslaught? (See chart below for statistics on emerging market oil industry debt)


Click to enlarge


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