BP reports worst annual loss in at least 20 years and further job cuts

Generali

cells wrote: »

BP has debt to equity of about 20%.

That's like buying a house with an 80% deposit.

Not a lot that can go wrong lending at those levels

Maybe some oil companies have debt to equity much worse than that but those oil companies will be very tiny conlarrd to BP in the range if 1/100th the size

Perfectly true however their income has fallen pretty substantially.

vivatifosi

I don't know much about oil and gas. Can someone who does please help me with this question, which relates to something that I heard on the radio about refining capacity being shut?

If the price of what is coming out of the ground has tanked, but what is being shut is refining capacity, could we reach a point where there is a glut of unrefined product, but a shortage of refined product at the pumps?

Generali

vivatifosi wrote: »

I don't know much about oil and gas. Can someone who does please help me with this question, which relates to something that I heard on the radio about refining capacity being shut?

If the price of what is coming out of the ground has tanked, but what is being shut is refining capacity, could we reach a point where there is a glut of unrefined product, but a shortage of refined product at the pumps?

That happened a few years back when a series of fires across the world closed a lot of refineries across Asia causing a huge spike in the cost of (especially) diesel.

A lack of refinery capacity could cause oil to fall but petrol prices to rise.

I'm not aware of any shortage of refinery capacity.

Thrugelmir

vivatifosi wrote: »

I don't know much about oil and gas. Can someone who does please help me with this question, which relates to something that I heard on the radio about refining capacity being shut?

If the price of what is coming out of the ground has tanked, but what is being shut is refining capacity, could we reach a point where there is a glut of unrefined product, but a shortage of refined product at the pumps?

Saudi Arabia is increasing refining capacity as part of it's plans to rebalance the economy. Competition is growing upstream and downstream. As everybody fights for a cut of the pie.

TheeMaskedTurnip

This news is being cheered on over at HPC goon central. They really are despicable heartless animals.

Thrugelmir

TheeMaskedTurnip wrote: »

This news is being cheered on over at HPC goon central. They really are despicable heartless animals.

What goes around comes around in the most unexpected quarters.

Crashy_Time

cells wrote: »

BP has debt to equity of about 20%.

That's like buying a house with an 80% deposit.

Not a lot that can go wrong lending at those levels

Maybe some oil companies have debt to equity much worse than that but those oil companies will be very tiny conlarrd to BP in the range if 1/100th the size

What I meant was risk to banks from the oil derivatives market.

Generali

Crashy_Time wrote: »

What I meant was risk to banks from the oil derivatives market.

Well the total gross size of the non-metals OTC derivatives market was $205,000,000,000 at the end of 2015 and only a fraction of that will be oil derivatives. The tales of doom and gloom that you can read on websites like Zero Hedge will concentrate on the notional value of the contracts but that is a meaningless number really.

A good proportion of that figure will be small oilies that are forced to hedge their oil sales in order to borrow money and people like oil refiners, airlines and petrol retailers hedging purchases of oil. The flow of money there will be from the buyers of oil to the sellers of oil: oil companies hedging sales and oil consumers hedging purchases. Unless buyers of oil are going to go bust then that flow will not cause any material problems for the banks. There won't even be any significant liquidity mismatch as forwards and futures settle on quarter days in almost all cases.

Then we are left with any proprietary or market maker positions that banks have taken. There will be some of these, particularly the latter but I see no reason why they should be significant and, given the extent of the fall in the oil price, we would already be seeing profit warnings and drops in reported profits if there were losses. Don't forget that these are liquid positions (no pun intended) and so easily marked to market by an auditor. It's not like MBS/CDOs with a limited secondary market so can be marked to the imagination of the bank.

The potential losses to banks come when the futures run out (it's too expensive to hedge much more than about 2 years out although low interest rates make it cheaper than it was) and oil companies then struggle to repay their debts.

The reason the profits of little companies are holding up whereas BP's have collapsed is that the small guys are forced by the bank to hedge whereas the big boys don't have to.

cells

the oil market will correct if $30 is not sustainable.

each year demand is growing by about 1mbpd and each year of low prices output is falling by abouy 1mbpd

If the market is oversupplied by a potential 2 mbpd it should be resolved by about mid next year.

purch

Crashy_Time wrote: »

What I meant was risk to banks from the oil derivatives market.

Which Oil derivatives are you referring to ?

The market is one of the most established in any commodity, and has been trading perfectly happily for decades, with the price of Oil going up and down substantially frequently. The price has been much much higher and also much lower as well in the past 20 years.

Don't know why now should be any different.