Fitch Ratings delivered another blow to BP when it announced this morning that it has downgraded the oil company’s long-term credit risk from AA to BBB, two steps above “junk.”
Although the repercussions were not immediately seen in the company’s share price there are reasons to be wary of major ramifications down the line.
Oil futures in the very long term could be impacted as BP finds it harder to get capital to sustain its existing drilling and open up new sites. Governments and private landowners may also be wary of granting rights to a company with such a toxic public image and credit rating.
It’s also important to note that BP is struggling to contain the leak because it was drilling in extremely deep water, which is increasingly where new oil deposits are found. Many in the oil industry say that the easy to find, easy to get oil has all been found.
As new discoveries come online, they will be located in more dangerous and precarious locations, where accidents like the Deepwater Horizon catastrophe are more likely. Another such accident would annihilate the share value of the operating company – see BP’s share value, down almost 50 percent from just three months ago. And next time, markets and futures won’t wait as long to move on the news.
This material is conveyed as a solicitation for entering into a derivatives transaction.
This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.
Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.
You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.