June 16, 2010
The US government has revised its estimate for the daily oil spill for the third time, now decidedly higher than the last iteration which was at 25,000-40,000 barrels per day. The latest estimate puts the high end another 50% higher, at 60,000 barrels. If this is indeed the case, it means that the amount of oil already having leaked could be as high a 3 million barrels, or 12 times the amount spilled in the Exxon Valdez. Whether this means that the previous estimate of a total possible BP liability and other payments of $80 billion have to be adjusted higher once again, is still unknown. We hope the president’s speech at 8pm will provide some more clarity on whether or not today’s BP CDS Spread around 500 is justified.
In other news, and as we discussed previously, the topic of BP counterparty risk is now approaching critical mass. In an exlcusive article, Reuters has reported that “Bank of America Merrill Lynch has ordered its traders not to enter into oil trades with BP Plc. that extend beyond June 2011.” In other words, BofA is limiting the duration of all derivatives to one year. It also likely means that any on the run 5 year swaps have to be immediately unwound. And one can be certain BofA is not the only one doing this.
The order to the bank’s traders came from a high-level executive and was made Monday, according to a source familiar with it. It told traders not to engage in trade with BP for contracts beyond one year from this month.
The directive didn’t state a reason for the limit on longer-duration trades with the oil company, which comes as the British oil giant scrambles to stop an oil spill in the U.S. Gulf of Mexico for which it could eventually face billions of dollars in economic liabilities.
This article was posted: Wednesday, June 16, 2010 at 4:11 am