Photographer: Andrey Rudakov/Bloomberg

Unfazed by Low Prices, Bankers Remain Confident in Oil Lending

  • JPMorgan, Wells Fargo keeping energy portfolios stable
  • Change in industry fundamentals cited for driving optimism

Fears of a long spell of low oil prices haven’t shaken Wall Street’s confidence in the sector.

With the price of crude languishing around $46 a barrel in New York, the industry’s bankers remain optimistic about their energy investments, according to JPMorgan Chase & Co. and Wells Fargo & Co. That’s different from a year earlier, when banks pulled back on loans to energy companies after crude dropped to about $26 a barrel in January 2016.

While prices have fallen about 13 percent since the banks last reported in April, energy portfolios have remained stable. A strong performance by Wells Fargo’s oil and gas portfolio in the second quarter helped shrink a $68 million decline in commercial losses, according to their earnings report on Friday. Meanwhile, JPMorgan said it released about $250 million from its reserves in the quarter, after starting the year with $1.5 billion set aside for energy.

"Whatever the price that would make people disturbed, it’s a lower price than what you might have thought a couple of years ago," John Shrewsberry, Wells Fargo Chief Financial Officer, said in the company’s earnings report. "It doesn’t feel like an area of concern."

A change in industry fundamentals means that low prices aren’t a reason for alarm, despite hopes that an agreement by the Organization of Petroleum Exporting Countries to cut output would raise global prices. "The production has migrated to the most efficient producers," Shrewsberry said.

Marianne Lake, JPMorgan Chase Chief Financial Officer, said she was confident "Oil prices have found a lower but seemingly stable level."

When oil prices plummeted last year, JPMorgan and Wells Fargo cut lending to oil and gas companies and set aside more cash to cover potential losses in the sector. U.S. lenders reassessed credit lines for companies in the industry and reduced borrowing limits for those most affected by the downturn, such as those in the oilfield services sector.

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