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Effect of Oil Price Slump Felt Outside Energy Sector

Effect of Oil Price Slump Felt Outside Energy Sector

Effects of the price fall in oil are becoming apparent in the wider economy. Barclays and Wells Fargo fear that they could be subject to significant losses after a loan of $850m was taken by two oil and gas companies. The loan was made in order to finance a merger between US oil companies, Sabine Oil & Gas and Forest Oil.

Knowledge of the loan arose on the announcement by Saudi Arabia that oil production would not be cut, with Saudi oil minister, Ali al-Naimi confident that the market will ‘stabilise itself eventually.’

OPEC members are split on whether production of the oil should be cut in an attempt to boost the price of the fuel, which has dropped thirty per cent since June due to an increase in US shale oil production and a decrease in demand.

Investors were reluctant to acquire the loan in June, and since then circumstances have only worsened; with an extended plunge in oil prices and the instability of bond markets. Now the banks, unable to offload the loan, are facing a loss on the deal.

The price dip is also being felt outside the energy sector, with the currencies of oil producing nations being affected. In just under 6 months, the Russian rouble has lost 27 per cent of its value and the Nigerian krone, twelve per cent.

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