Oil Price Drop: Winners and Losers in the Global Corporate Credit Market

Strategic Insights -

The recent decline in oil prices has created a ripple effect, impacting various sectors worldwide. Coface, a leading credit insurer, has analyzed the effects of this price drop on company credit risk and identified a clear loser and winner among the 14 sectors studied. The North American energy sector is facing significant challenges, while the European chemical industry is benefiting from the decline in oil prices.

Key Takeaways:

  • The North American energy sector has been downgraded from "medium risk" to "high risk" due to the fall in crude oil prices, which has resulted in excess supply over demand and saturation of oil storage facilities.
  • The energy sector in North America has been particularly hard hit, with many shale oil investment projects facing viability issues due to high extraction costs and reduced investment.
  • The European chemical industry has been upgraded from "high risk" to "medium risk" due to the decline in oil prices, which has reduced the competitiveness gap with US industry and restored margins.
  • The depreciation of the euro has contributed to the improved performance of the European chemical industry, making it a significant beneficiary of the oil price drop.
  • The energy sector's revenue and profitability have been negatively impacted by the decline in oil prices, resulting in reduced investment and layoffs in the industry.
  • Coface has identified several other sectors that are benefiting from the ongoing trend, including sea transport and the European automotive industry.

Statistics:

  • 77%: The saturation level of the oil storage facility in Cushing, the largest in the United States, at the end of March 2015.
  • $50-$70: The average extraction cost for non-conventional oil, which is considered high and contributing to the viability issues of many shale oil investment projects.
  • +1.9%: The increase in sales of the European chemical industry in France in 2014 in the domestic and export markets.
  • 14: The number of sectors analyzed by Coface, which have been impacted by the oil price drop.

Sources:

  • Coface, "North America: Assessment revised downwards" (no date specified)
  • Coface, "Europe: Chemical industry upgraded to medium risk" (no date specified)
  • Coface, "Global economic research" (no date specified)
  • Questex Asia Ltd. (2015)