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Collapse of the big oil trader, risk appetite. Talking points
- Oil trading giant Hin Leong filed for bankruptcy
- Markets are now weighing their lenders’ exposure
- The collapse of energy prices seems to have claimed a major player
At every major crisis there comes a point where weakening economic numbers translate into corporate scalps and Singapore’s nodal energy market has reached that point. Its largest oil trading company, Hin Leong Trading, has filed for bankruptcy protection, seeking to restructure nearly $ 4 billion in debt.
Of course, the energy sector has taken an unprecedented blow. The coronavirus has crushed forecasts for energy demand even when the main producers saturate the market with cheap oil. Oil prices have plummeted to lows not seen since 2001, even after significant production cuts that so far they have done nothing to revive it.
As always, contagion is on the market’s mind.
The focus now shifts to Hin Leong’s many lenders. The Straits Times reports that HSBC is the largest, at $ 600 million, while three major Singapore banks (UOB, OCBC, and DBS) have a combined total of $ 600 million. The Monetary Authority of Singapore has reportedly contacted all relevant banks and markets, appears to be pleased that the company has encountered problems due to specific difficulties and that its problems do not become a wider regional contagion. .
However, the tribulations of such a large and long-lived part of Singapore’s energy market will do little for battered risk appetite, with nervous eyes probably on the entire energy complex as crude oil prices continue to drop. US crude futures fell 6% on Monday when Asian trading began.
The flood of cheap oil unleashed by the Saudi Arabia / Russia price war that crushed prices in March will take time to make its way into a market depressed by silenced demand despite a truce being called. With all the major economies still under some form of blockade, the markets will be on the lookout for any other Hin Leong that may be there, along with their lenders and operating partners.
|
Change in |
Long pants |
Shorts |
OI |
| Diary | -3% | -one% | -3% |
| Weekly | 3% | 3. 4% | 7% |
In summary, the strong underlying supply for safe-haven assets such as US Treasury bonds is unlikely. The US, the Swiss franc, the Japanese yen, and gold face a significant hit despite riskier assets performing better in April.
Merchant Resources
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— Written by David Cottle, DailyFX Research
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