The head of Germany’s financial regulator is warning that US subprime mortgage problems may be about to lead to the worst banking crisis since 1931. Yesterday, WTI crude broke through its 1980’s highs to hit a new all-time record price of $78.77/bbl, and looks poised to push on past $80/bbl. And adding to the sense of ‘retro’ is the news that debt traders have revived the 1980’s children’s TV show ‘Teenage Mutant Ninja Turtles’ as an acronym. NINJA now stands for No INcome, Job or AssetsWTI has risen strongly in recent weeks. Its price had been held back by major refinery maintenance in the Cushing area, which led to oil storage problems and put pressure on prices. At one point, Brent was trading at a several dollar premium to WTI as a result, compared to its normal $1/bbl discount. Even today, Brent and WTI are only at parity, so it still has some ground to make up.

In ‘What price oil’ on 5 July, I referred to the CGES analysis of oil market supply/demand, and suggested that markets were wrong to be focusing on apparently healthy US crude stocks. The real issue, apart from the stock problems at Cushing (where the WTI benchmark is located), was the lack of sufficient OPEC supply as we move into the peak winter demand months.

It seems that markets now accept this analysis. At the time of writing, WTI stood at $71.41/bbl, so it has risen just over 10% since I made the call. And OPEC seems steadfast in its refusal to consider any increase in production, with its current President suggesting earlier this week that there was no reason even to put the subject on the agenda for September’s Ministerial meeting.

So it looks as though oil and gasoline prices will stay high as we move into autumn. This will increase inflationary pressures, as last year oil prices declined significantly in the second half of the year (prompting OPEC’s caution now), and so the comparison by December will be against $55/bbl crude. Equally, the European heat wave and the UK floods, plus the US drive to use corn for gasoline, are already pushing up food prices.

At the same time, more NINJA’s now seem to be appearing outside the USA, unable to pay their debts. I was astonished to learn from today’s Financial Times that Jochen Sanio, head of Germany’s financial regulator, has ‘warned of the worst banking crisis since 1931’. I do not know Herr Sanio, but I assume that a man in his position is not normally given to hyperbole. His comments are certainly in line with the potential problems identified by the world’s central bank, which were discussed here a month ago in ‘4 risks to the world economy’.

Rising oil and inflation, plus weakening US demand and credit markets, sounds to me like a distinctly unhealthy cocktail of events. And if Herr Sanio is remotely right in his analysis, then a lot more NINJA’s will be turning turtle over the coming months. This would not be good for chemical company profits, or their stock market values.

PREVIOUS POST

Turning base quality loans into gold

31/07/2007

Alchemists once claimed the ability to turn base metal into gold. More recently,...

Learn more
NEXT POST

Interesting Quotes

06/08/2007

Normally a 275 point fall on Wall Street, and a 600 point fall in Hong Kong, wou...

Learn more
More posts
G7 births hit new record low, below Depression level in 1933
14/07/2019

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

Read
From subprime to stimulus…and now social division
06/07/2019

The blog has now been running for 12 years since the first post was written from Thailand at the end...

Read
Resilience amidst headwinds is key for H2
30/06/2019

Resilience is set to become the key issue as we look forward to H2, as I note in a new analysis for ...

Read
Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms
23/06/2019

Never let reality get in the way of a good theory. That’s been the policy of western central b...

Read
Europe’s auto sector suffers as Dieselgate and China’s downturn hit sales
16/06/2019

Trade wars, Dieselgate and recession risk are having a major impact on the European auto industry, a...

Read
2019 Global Outlook – a mid-year update: ACS webinar on Thursday
04/06/2019

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and t...

Read
Recession risk rises as Iran tensions and US-China trade war build
26/05/2019

Oil markets are once again uneasily balanced between two completely different outcomes – and o...

Read
US-China trade war confirms political risk is now a key factor for companies and the economy
12/05/2019

There are few real surprises in life, and President Trump’s decision to launch a full-scale tr...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more