C.M.O. 12.03.2009
Credit Market Overview
December 3, 2009
The credit crunch crisis of confidence which we appear to be crawling out of even though the debt and equity markets catapulted themselves higher earlier this year could be similarly argued to be a crisis that started in the credit markets which crunched confidence around the world as it could a collapse in confidence in the value of the securities investors held which corrupted the credit markets causing them to cease funding.
We have seen contradictory statements throughout the collapse and climb so it comes as no surprise to have the International Energy Agency issue statements countering themselves within a very short period recently.
The first was a headline in the WSJ that said; “Forecast For Oil Use Increases”. The second published within two weeks of the first and also in the WSJ proclaimed: “World Need for Oil Expected to Ease”. Now, lest you think the top ranks of the IEA were suddenly filled with folks from D.C. so apt at going back on what they say it seems as if they are saying both things at the same time, the IEA was actually talking about two different time horizons and a closer examination of their forecasts seems to achieve what every politician dreams of; giving people their cake and letting them eat it to.
The first headline was a story about the next year or so and the crux of that piece was that 2009 world oil demand was expected to be up 200,000 bbl/day at 84.6MM bbl/day. David Fyfe, editor of the report said; “Things are looking better from an economic perspective”.
The second report had a slightly longer time horizon and projected a lowering of demand for oil by about 10MM bbl/day by 2030 as a result of “demand management policies”. The same report a year ago forecast a daily use of 106MM bbl/day.
Analysts had been using a 2%/yr growth estimate in their forecasts but have more recently lowered those to 0.5%-1.0%. Philip Verleger, an independent energy economist in Colorado, believes the second estimate is more realistic saying; “The rise in global oil consumption over the next 10 years could be minimal”.
As “Big Oil” goes there is none bigger than ExxonMobil (XOM) which, with a market capitalization of about $345BN, also holds the title of “World’s Largest Company” by that metric.
The CDS chart for XOM has formed a relatively smooth downward slope for just about all of 2009 even with the turmoil this spring. The stock has had a wider range closing last night at $75.79 which is the result of a fairly erratic climb off of its 3/6 low of $61.86 but not quite up to its high a tiny bit longer than a year ago of $83.64 on 12/8/2008.
Enjoy the week.
Jim Delaney
