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Actionable news in CHK: CHESAPEAKE ENERGY Corp,

No F8 But What You Make - Financial Review

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

DOW + 149 = 17,705
SPX + 19 = 2061
NAS + 38 = 4872
10 Y + .04 = 1.78%
OIL + 1.28 = 41.64
GOLD – 2.40 = 1256.70

Earnings season is underway. Later this week big US banks will start releasing results, including JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC); the big banks are looking like one of the weakest sectors this earnings season. Expectations for earnings are low this quarter. Analysts surveyed by FactSet expect corporate profits to be down 9.1 percent from a year ago, hurt primarily by the steep drop in oil prices and other commodities. The entire energy sector is expected to report a loss this quarter.

This Sunday, oil producers meet in Doha, Qatar to consider some sort of production cuts. Iran has repeatedly showed zero interest in a production freeze at the current level, saying it would keep pumping until production reaches the pre-sanction level of around 4 million barrels a day. Today, Russia and Saudi Arabia announced a production freeze regardless of whether Iran participates in the plan to tackle a supply glut.

It may be the world’s biggest traffic jam. As seaports struggle to cope with a global oil glut, huge queues of supertankers have formed in some of the world’s busiest sea lanes, where some 200 million barrels of crude lies waiting to be loaded or delivered. The vessels, filled with oil worth around $7.5 billion at current market prices, would stretch for almost 25 miles if formed up in one straight line. Meanwhile, the latest American Petroleum Institute (API) inventory data recorded a build of 6.2 million barrels for the latest weekly data, compared with an expected build of around 1 million.

Wells Fargo chose the wrong time to expand its oil-lending. The bank targeted some of the least creditworthy borrowers in the shale industry, demanding oil and gas reserves as collateral, a type of financing thought to be low risk. With oil now hovering close to $40 a barrel, the value of those reserves held as collateral has plummeted.

This pressure was clearly illustrated on Monday when Chesapeake Energy (CHK) pledged almost all of its oil and gas reserves, real estate and derivatives contracts to keep its $4 billion credit line. U.S. shale production, meanwhile, is seen reaching a two-year low.

Standard & Poor’s reported that it downgraded 44 US junk-rated companies in March, while upgrading just 15. This comes on top of the 82 issuers it downgraded in February. In the first quarter, about 45% of S&P’s downgrades hit oil & gas companies. Not a surprise, given the state the industry is in; the bigger surprise is that 55% of the downgrades hit companies outside oil & gas.

The International Monetary Fund lowered its estimate for global growth, citing volatility in financial markets, slowing momentum in developed economies and continued difficulty for emerging-market nations, as it also highlighted a growing backlash against trade and global ties. The IMF cut its estimate for global growth to 3.2% this year and 3.5% next year. That represents a downgrade of 0.2% for 2016 and another tenth for 2017 from what it forecast in January. The IMF’s...


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