US Banks Hit by Cheap Oil as Opec Warns of Long-Term Low

US banks face the prospect of tougher stress tests next year because of their exposure to oil in a sign of how the falling price of crude is transforming the outlook not just for energy companies but the financial sector.

The Organisation of the Petroleum Exporting Countries on Wednesday lowered its long-term estimates for oil demand and said the price of crude would not return to the level it reached last year, at $100 a barrel, until 2040 at the earliest.

In its World Oil Outlook it said energy efficiency, carbon taxes and slower economic growth would affect demand.

Crude oil’s price on Tuesday hit an 11-year low below $36, piling further pressure on banks that have large loans to energy companies or significant exposure to oil on their trading books.

The US Federal Reserve subjects banks with at least $50bn in assets, including the US arms of foreign banks, to an annual stress test, that is designed to ensure they could keep trading through a deep recession and a big shock to the financial system.


Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.