Exxon: First Downgrade Since Depression?

February 3, 2016

Is Oil the new coal?

Probably not, yet. But more evidence of the roller coaster that fossil fuels will probably be on as the world moves away from them, and for Exxon, maybe a preview of what markets may do as the public understands what Exxon knew, and when they knew it, about climate change.

Bloomberg:

Exxon Mobil Corp., one of three U.S. companies with Standard & Poor’s highest rating, is facing its first downgrade in 86 years as the worst crude-market collapse in a generation strangles oil producers of cash.

For Exxon, that would be a historic event: the global explorer that traces its roots to the 19th century and John D. Rockefeller’s Standard Oil Trust has been rated AAA by S&P since 1930. The oil giant was placed on credit watch with negative implications because its credit measures probably will remain weak through 2018, S&P said Tuesday.

“We get value from our AAA credit rating in our business,” Exxon’s Vice President of Investor Relations Jeffrey Woodbury said during a conference call with analysts before the credit review was announced. “Whether it be access to financial markets or access to resources, there is a benefit that we get from it, and we see it as being important.”

The world’s five largest oil explorers had their credit ratings cut or threatened with downgrade as the market crash undermines their ability to pay debts, dividends and rig leases. For most of the oil industry, slashing drilling budgets and other cost-cutting “are insufficient to stem the meaningful deterioration expected in credit measures over the next few years,” S&P said.

 

Bloomberg:

Oil bulls distressed that last week’s rally fizzled can find some comfort in forecasts for a bigger and longer rebound by the end of the year.

oilrebound

Analysts are projecting prices will climb more than $15 by the end of 2016. New York crude will reach $46 a barrel during the fourth quarter, while Brent in London will trade at $48 in the same period, the median of 17 estimates compiled by Bloomberg this year show. A global surplus that fueled oil’s decline to a 12-year low will shift to deficit as U.S. shale output falls, according to Goldman Sachs Group Inc.

The oil price rout will shut sufficient production to erode the global glut and crude will turn into a new bull market before the year is out, analysts including Goldman Sachs’ Jeff Currie said in a Jan. 15 report. U.S. production hit a record high of 9.61 million barrels a day in June, according to weekly data from the EIA, and is forecast to average 9.11 million barrels a day in the first three months of the year. It may fall to average 8.49 million barrels a day during the fourth quarter, according to the agency.

‘Drown in Oversupply’

“We’ll see higher oil prices” with “supply and demand tightening in the second half of the year,” Bob Dudley, chief executive officer of BP Plc, said in a Bloomberg Television interview Tuesday. The market will remain “tough and choppy” in the first half as it contends with a surplus of 1 million barrels a day, he said.

 

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8 Responses to “Exxon: First Downgrade Since Depression?”

  1. Ron Voisin Says:

    Recall that the objective to “hold temperature rise to 2 degrees” came about because a rise up to 2 degrees is expected to be net-beneficial and then net-detrimental thereafter.

    We have not yet experienced all the benefits as we have not yet risen 2 degrees.

    U.S. per capita GDP 1980: ~$12,600
    U.S. per capita GDP 2013: >$53,000

    Exon wasn’t selling an addictive product that haplessly fed our fetish.
    Rather they were selling ever-less-expensive energy to feed extraordinary wealth generation through these years of ever-beneficial temperature rise.

    Once we pass 2 degrees we might scrutinize Exon more closely.

    • Jon Torrance Says:

      “Recall that the objective to “hold temperature rise to 2 degrees” came about because a rise up to 2 degrees is expected to be net-beneficial and then net-detrimental thereafter. ”

      Citation please. That isn’t at all the way I recall it.

      • Gingerbaker Says:

        “…a rise up to 2 degrees is expected to be net-beneficial”.

        It’s a denier talking point based on discredited analysis by the not highly-regarded and thin-skinned economist, Richard Tol.


        • Even he is backing away from that foolish statement and that paper was cut to ribbons, yet he still tried to use it as the basis for his economic impact summary of the IPPC (as lead author) after all the discussion and peer review was concluded, he slipped it in. The IPCC had to retract and change that statement.

          http://www.theguardian.com/environment/2014/oct/17/ipcc-corrects-claim-suggesting-climate-change-would-be-good-for-the-economy

          Read the comments. Poor old Richard kept on chewing on his own feet.

          http://qz.com/552205/even-this-climate-skeptic-is-now-worried-about-the-potentially-devastating-impact-of-climate-change/

          Tol, who’s an advisor to the climate skeptic lobby group Global Warming Policy Foundation, stated the adverse effects of rising temperatures would likely outweigh the good on BBC Radio’s Changing Climate program. “More pronounced warming is probably a net negative,” he said.

          Tol had previously rejected the UN’s conclusions on the impact of climate change, calling it “too alarmist,” and had described a tipping point between the positive and negative effects of climate change—what other researchers have described as the “Goldilocks temperature.”

          This suggests many, predominantly rich countries are set to benefit from climate change up to a certain temperature, but productivity will likely fall once global temperatures pass this point. Tol had expected this to be “around 1.1˚C of warming relative to pre-industrial” temperatures.

          The BBC presenter was quick to point out that we’re almost at this dangerous boundary—earlier this month the UK’s Met Office predicted global temperatures will rise more than 1˚C by the end of 2015. The record-breaking heat of the last 10 months suggests 2015 will be Earth’s warmest year in history.

          Tol now suggests the idea that the world would likely benefit from anything up to 2˚C of warming as “a bit too optimistic.”


  2. Reblogged this on A Green Road Daily News and commented:
    What is needed is an emergency transformation of society, moving away from top down 1 percent controlled power structures, into bottoms up consensus based community democratic organizations, plus energy systems.

  3. earl Says:

    Weren’t S&P rating all those CDOs as AAA right up until the subprime crash?


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