IACPM Energy Webinar July 2020 - Tarek Hamid (AC) 212-834-5468
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IACPM Energy Webinar July 2020 Tarek Hamid (AC) 212-834-5468 | tarek.x.hamid@jpmorgan.com J.P. Morgan Securities LLC
Executive Summary
COVID-19 has led to massive disruptions across the oil patch and related capital markets
OPEC+ actions on the supply side have mitigated the demand destruction – but the market has never been
as reliant on a potentially fragile cartel
Oil prices have to remain low for the next year to limit supply and allow the COVID-19 inventory hangover to be
worked off
Breakeven economics are an art form – but US shale does not work at prices below $45/bbl
Fortunately, OPEC budgets also don’t work at these prices
Exploration and Production gets all the attention, but Midstream and Services are important too
Midstream businesses provide critical infrastructure and are viable, thriving businesses
The only thing worse than a business with bad economics….is being the Service Provider to a business with
bad economics
US shale has destroyed an extraordinary amount of capital. Equity is largely unavailable, and credit availability
is substantially reduced
Bank funding is becoming far more dear, and debt capital markets, while open, are at a much wider discount
post COVID-19
Defaults are likely elevated for the next two years regardless – how elevated is a function of the
commodity/OPEC+
Spreads are highly bifurcated by ratings, but arguably inline with commodity prices in aggregate
1Agenda
Page
1 Oil Macro Overview 2
2 Natural Gas Macro Overview 9
3 US Shale Company Fundamentals 13
4 US Shale Company Financing 21COVID-19 Impact On Demand Has Been Substantial
Oil Consumption By End Market Monthly Global Oil Demand (mbd)
100
96.6
95 93.9
Power 90 88.9
87.7
Buildings 4% Cars
10% 21% 85
80.7
Industry 80
12% 76.2
75
Trucks 70
Non- 24%
combusted
16% 65
Air/Ship
13% 60
55
50
January February March April May June
Source: BP, JPMorgan. Source: JPMorgan Commodity Strategy.
2Demand Recovery Occurring, Final Extent Less Clear
US Vehicle Miles Traveled By Activity Vehicle Miles Traveled
Medical / Other, 6% US Vehicle Miles Traveled Y/Y % Change
Commuting / 3,300,000 2.0%
Dental, 2%
School / Work-related
3,250,000 1.0%
Church, 5% Business, 33%
Visit Friends 0.0%
3,200,000
and Family,
-1.0%
9% 3,150,000
-2.0%
Family / 3,100,000
Personal -3.0%
Errands, 14% 3,050,000
Social / -4.0%
Recreational,
Shopping, 15% 3,000,000 -5.0%
16%
Source: US Department of Transportation, Federal Reserve, J.P. Morgan. Source: Federal Reserve.
Global Business Travel Survey - Business Travel Plans US Jet Kerosene Consumption
Plans to 2,500 US Jet Kero Demand (kbd) y/y % Change 55.0%
Not sure, 17% resume travel
in the near 35.0%
2,000
future, 15% 15.0%
1,500 -5.0%
Do not plan to Considering 1,000 -25.0%
resume travel resuming -45.0%
in near future, travel in near 500
14% future, but no -65.0%
definite plans, 0 -85.0%
54%
Source: Global Business Travel Association. May 2020. Source: EIA.gov.
3OPEC+ Cuts Are Heroic & Unprecedented
Cuts Delivered A 17% Effective Reduction In OPEC+ Oil Supply
OPEC+ Cuts Summary (kbd)
Pledged Cut vs. Oct 2019 Baseline Effective Cut vs. 1Q20 Average
2,508 2,508
1,933
1,456
1,061
1,045
722
641 610
505
417 390 419
348
296
241 201160
185 169 164 136
74 90 107 10070
29 22 43 54 47 0 23 23 22 17 8 30 70
Source: JPMorgan Commodity Strategy.
4Supply Side Intervention By OPEC+ Appears To Have Been Enough (For Now)
Global Oil Supply
OPEC Crude OPEC Other Liquids Non-OPEC Crude + Other Processing Gain
99.2 98.1 99.1 99.5
2.7 2.5 2.7 2.7
92.0 92.8 92.8 93.2 93.2
89.3 89.3 2.7 2.7 2.8 2.8
87.1 2.8
2.7 2.8
2.8
63.4 63.2 61.8
63.1
59.8 59.7 59.7 59.9 59.8
58.0 58.8
57.5
4.3
4.5 4.5 4.4
4.2 4.1 4.1 4.1 4.1
4.1 4.2
4.0
28.6 28.0 28.8 30.7
24.5 23.5 25.2 26.3 26.3 26.4 26.5
22.8
January February March April May June July August September October November December
Source: JPMorgan Commodity Strategy.
5Limited Spare Storage Capacity & Forecast Risk Remains The Cap On Pricing
Global Oil Supply Demand Balances (mbd)
Total Oil Demand Total Oil Supply Stock Change To Balance
96.699.2 99.1 99.5
93.998.1 89.6 89.3 91.189.3 92.9 92 93.992.8 94.892.8 96.493.2 96.793.2
87.787.1
76.4 81
23.1
9.5 8.3
2.6 4.2
-0.6 -1.8 -0.9 -1.1 -2 -3.2 -3.5
January February March April May June July August September October November December
Source: JPMorgan Commodity Strategy.
Total Spare Storage Capacity (mb)
1,918
1,794
1,500
938
801 828
674 733
614 643
534 552
January February March April May June July August September October November December
Source: JPMorgan Commodity Strategy.
6Getting US-Centric For A Moment….Production Declines & Basin Consolidation
JPM US Oil Production Forecast (mbd)
Permian -TX Permian - NM Eagle Ford Williston Basin DJ Basin Offshore GoM Other
11,756
11,094
10,478 2,033 10,504
10,229
1,761 9,984 10,062 10,078
1,330
2,005 1,382 1,350
1,542 1,424
1,892
1,879 1,733
1,733
1,919 1,789
1,761 537 1,819
486 341
344
1501 358 349 830
472 1257 378 853
879
981 910 957
1334 975
1472 1246 994
1016
1051 1,187
1421 1,164
951 1,127
877 980 1,070
659
3,810 4,126
3,444 3,514 3,233 3,365 3,558
2,826
2018 2019 2020 2021 2022 2023 2024 2025
Source: Enervus, JPMorgan Equity Research estimates.
7Creating A Commodity Curve Shape That The Market Shows Zero Confidence In
WTI Futures Curve & Option Implied 90% Confidence Interval
Futures Price Lower Bound Upper Bound
$84.00
$78.50
$72.00
$67.00
$59.00
$56.21
$40.92 $41.29 $41.89
$39.10 $39.69 $40.38
$23.00 $23.50 $23.00
$23.00 $22.50
$9.15
August-20 December-20 June-21 December-21 June-22 December-22
Source: Bloomberg.
8Agenda
Page
1 Oil Macro Overview 2
2 Natural Gas Macro Overview 9
3 US Shale Company Fundamentals 13
4 US Shale Company Financing 21COVID-19 Impact Has Been Modest – Biggest Impact Has Been Lower LNG Exports
US Natural Gas Demand US 2020 LNG Exports
Exports 10
14% Power
Generation 9.5
33% 8.8
8.6 8.5
Lease, Plant, 8.2
Fuel 8
8% 7.5
6.7
6
5.5
4.2
Residential
22%
Industrial
23%
April
March
June
January
February
May
July
September
October
November
December
August
Source: JPMorgan. Source: JPMorgan Commodity Strategy.
9Total Demand Has Followed Normal Seasonal Patterns
US 2020 Natural Gas Demand (bcf/d)
Exports Power Gen Industrial Residential/Commercial Heating Lease, Plant & Fuel
110.0 110.0
104.7
8.3 8.2
8.2
92.1 92.7
7.7 8.2
40.5 78.4 80.3
41.5 79.3 77.6 77.4
7.7 38.2
7.4 72.9 73.4 7.6 7.6 7.7 26.3
27.5 7.2 7.4 7.7
7.8
8.5
8.8 13.7
20.2 11.5
20.9 21.2
25.1 21.5
25.3 20.8 24.1 24.5
23.1 22.0
20.8
19.3
39.5 39.8 34.5
29.4 30.4 27.7 27.9 27.0 26.2
26.2 29.2 34.4
13.8 14.0 13.8 12.7 13.1 13.8 15.3 15.8
11.4 9.4 11.1 11.6
January February March April May June July August September October November December
Source: JPMorgan Commodity Strategy.
10Lower Oil Production Has Led To Lower Gas Supply
US 2020 Natural Gas Supply (bcf/d)
Dry Gas Production Net Canadian Imports LNG Imports
99.2
98.8 0.2
0.2
97.5
0.2
96.0
4.8 5.4 95.7
0.1 95.4
95.2 95.1 0.2 0.2
4.1 0.2 0.2
93.8
3.7
0.2
92.4 3.5 3.5 4.0 4.5
92.0 0.2
0.1 91.3 3.5
0.1
4.0
4.0
4.0
93.8 93.6 93.2
92.2
91.5 91.4 91.2 91.0
90.1
87.9 88.2
87.2
January February March April May June July August September October November December
Source: JPMorgan Commodity Strategy.
11On Purpose Gas Supply (Appalachia/Haynesville) Should Be A “Winner” From COVID-19
JPM US Natural Gas Production Forecast (bcf/d)
Permian -TX Permian - NM Eagle Ford Williston Basin DJ Basin Midcon Offshore GoM Other Appalachia Haynesville
102,660
100,142
93,325 11,968 94,997 94,586 94,903 96,098
94,214
11,970
9,966 12,352 12,912 13,326 13,502
13,117
32,106
32,467
28,555
33,363 34,238 35,851
34,638 35,251
17,720
16,314
18,972
15,079 14,520
2,851 13,876 13,614 13,551
2,600
2,732 9,523 2,442
8,219 2,259 2,117 2,068 2,068
9,112 6,471 5,503 4,968 4,666 4,443
2,826 2,863
3,043 2,892 2,403 2,438 2,570 2,671 2,761
2,290 2,368 2,236 2,197 2,158 2,120
2,489 7,855 5,220
8,368 6,527 6,034 5,701 5,438
7,896 3,809 3,839
3,245 3,562 3,489 3,651 3,755
2,454
11,010 11,400 10,503 10,795 11,275 11,902 12,743
8,859
2018 2019 2020 2021 2022 2023 2024 2025
Source: Enervus, JPMorgan Equity Research estimates.
12Agenda
Page
1 Oil Macro Overview 2
2 Natural Gas Macro Overview 9
3 US Shale Company Fundamentals 13
4 US Shale Company Financing 21For The Avoidance Of Doubt, This Has Historically Been A Difficult Business
US E&P Returns On Capital Poor; Not Just Commodity Prices
Return On Capital Average WTI Oil Price
14%
13% 13% 13%
13% $98
$95
$100
12% $93
$94
11% 11%
$80
$72 $62 $65
9% 9%
$66
8%
$57 $57
7% 7% $51
$49
6% $43
$31 $41
5% 5%
$30 $26 $26
4%
1%
-1%
-2%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Kimmeridge, JPMorgan, Bloomberg.
13Lets Throw Around The Word Breakeven – EBITDA Breakeven
Rapid Depletion Makes EBITDA Breakeven Somewhat Meaningless
EBITDA Breakeven Analysis
Lease Operating Expenditure G&A Basis Differential Mix Adjustment
$26.66
$3.78
$20.86
$3.28
$1.64
$4.28
$5.40
$14.14
$12.84
$2.33
$10.62
$4.18 $6.86
$1.05
$1.73
$15.32
$3.69 $1.32
$11.49
$7.84
$5.96
$4.97
PDCE CLR CPE WPX OAS
Source: JPMorgan, Company data.
14Lets Throw Around The Word Breakeven – Half Cycle Breakeven
Industry Really Likes Half Cycle Breakeven – Ignores Bad Acquisitions, Sometimes Return On Capital
Half Cycle Breakeven Analysis
Lease Operating Expenditure G&A Basis Differential Mix Adjustment F&D Costs
$46.80
$13.62
$28.86
$27.16
$10.30
$5.76
$7.62 $21.91
$18.96 $3.88 $3.28
$5.40 $8.94 $4.28
$4.50 $5.40
$1.62
$2.33
$2.35
$4.18 $6.86 $1.05
$1.73
$15.32
$3.69 $1.32
$11.49
$7.84
$4.97 $5.96
PDCE CLR CPE WPX OAS
Source: JPMorgan, Company data.
15Lets Throw Around The Word Breakeven
Full Cycle Breakeven
Full Cycle Breakeven Analysis With Return On Capital
Lease Operating Expenditure G&A Basis Differential Mix Adjustment F&D Costs Acreage Acquisition Return On Capital
$62.27
$12.47
$48.93
$3.00
$44.36
$41.62 $11.07
$39.83
$13.62
$9.47 $13.46
$10.88 $9.00
$5.00
$10.30
$9.00 $5.76
$10.00 $7.62
$3.88 $3.28
$4.50 $5.40 $8.94 $5.40 $4.28
$1.62 $2.33
$4.18 $6.86 $2.35
$1.05
$1.73 15.32
$3.69 $1.32 11.49
5.96 7.84
4.97
PDCE CLR CPE WPX OAS
Source: JPMorgan, Company data.
16But Those Breakeven Levels Don’t Look Bad Long-Term Vs OPEC+
Fiscal Breakeven Levels Are Not Apples To Apples With Company Breakeven Levels…But Tell A Story
Key OPEC Fiscal Breakeven Levels
$194.60
2016 2018 2020E
$96.40
$88.60
$82.00 $83.60
$70.00
$66.70
$58.40 $60.30
$54.20 $54.70 $54.00
$50.30 $51.10
$46.30 $45.40 $45.70
$43.40
Iran, I.R. of Iraq Kuwait Qatar Saudi Arabia United Arab Emirates
Source: IMF. Does not reflect COVID19 costs or austerity measures.
17It’s Not All E&Ps – Midstream Space Is Large And Complex
Infrastructure Is Just As Capital Intensive As Upstream, But Substantially Longer-Lived With Less
Competition & Better Contracts & Pricing
Source: Cohen and Steers.
18It’s Not All E&Ps – Midstream Can Be Very Attractive For Capital
Select Midstream Return on Equity
11.5%
9.4%
8.2%
7.0%
6.4%
5.0%
4.5%
3.3%
1.5%
EPD CEQP ETP APLP NS KMI USAC WMB TRGP
Source: Bloomberg, JPMorgan.
19It’s Not All E&Ps – Energy Services Make E&P Look Easy
US Rig Count Deepwater (4,000ft+) Average Dayrate
Oil Gas $550,000
1000
900 $500,000
800
700 $450,000
600
500 $400,000
400
300 $350,000
200
100 $300,000
0
$250,000
Jan-18
Feb-18
Mar-18
Apr-18
Jun-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
Jun-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
Jun-20
May-18
Jul-18
May-19
Jul-19
May-20
$200,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Baker-Hughes, JPMorgan. Source: Rigzone.
Services 2019 Return On Capital S&P500 Services Equity Market Capitalization ($bn)
$300
0.9%
$250
$200
-3.3% -3.9%
$150
-8.8%
$100
$50
$0
-20.5%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 May
BKR HAL RIG NBR SLB 2020
Source: Bloomberg, JPMorgan. Source: Bloomberg, JPMorgan.
20Agenda
Page
1 Oil Macro Overview 2
2 Natural Gas Macro Overview 9
3 US Shale Company Fundamentals 13
4 US Shale Company Financing 21Equity – There Is None Energy Equity Has Shrunk from 11% of Total Equity Market To
Bank Funding Was Ample
The Unrated Portion Of The Exposure Is Perhaps The Biggest Area Of Risk
Total US Bank Energy Exposure Total US Bank High Yield Energy Exposure
All Energy Exposure Drawn Exposure HY Energy Exposure Drawn Exposure
Exploration & Production 280,235 54,129 Exploration & Production 80,890 24,952
Integrated Oils 24,908 521 Integrated Oils - -
Oil & Gas Services & Equipment 90,750 29,116 Oil & Gas Services & Equipment 15,013 4,295
Pipeline 188,273 76,093 Pipeline 46,310 30,372
Refining & Marketing 68,487 20,598 Refining & Marketing 21,691 10,789
Total 652,653 180,457 Total 163,904 70,409
Source: JPMorgan Bank Credit Research. Source: : JPMorgan Bank Credit Research.
Total US Bank Energy Exposure Total US Bank High Yield Energy Exposure
300,000 80,000
250,000 70,000
HY Rated IG Rated Non Rated 60,000
200,000 50,000
150,000 40,000
100,000 30,000
20,000
50,000 10,000
- -
Exploration & Integrated Oils Oil & Gas Pipeline Refining & Exploration & Integrated Oils Oil & Gas Pipeline Refining &
Production Services & Marketing Production Services & Marketing
Equipment Equipment
HY Rated IG Rated Non Rated
Source: JPMorgan Bank Credit Research. Source: JPMorgan Bank Credit Research.
22Borrowing Base Loans Are An Important Source Of High Yield Financing
Historically Great Structure, But Sophisticated Companies/Investors Have Taken Advantage
Borrowing Base Mechanics Borrowing Base Scenario Analysis
1.Garbage in, garbage out CDEV OAS SM
– Based on a company's most recent reserve report
– Commonly recalculated twice a year (in the spring and
fall)
$1,058
– The calculation typically uses the company's PDP
production decline curve and operating costs (typically
$926
sourced from management estimates), as well as the
company's PUD production curve and operating and
capital costs $801
$763
– Banks typically haircut PDP reserves modestly (~65%
$694
credit) and PUD reserves heavily (~20% credit) $669
– The entire analysis is discounted at 9%
$547
2.The price deck is a source of enormous angst $499
– Historically, the near-term price deck assumptions are
$425
based on a discount to strip pricing, although in times $387
of severe stress banks have sometimes used pricing at
a modest premium to strip pricing $274
– The longer-term price assumption (5yr+) has typically
been a "normalized" assumption with less of an anchor $161
to strip pricing
3.Hedging requirements and hedging incentives have been
increased $25/bbl $30/bbl $35/bbl $40/bbl
4.Special redeterminations are this great hypothetical feature, Source: JPMorgan, Company data.
which doesn’t seem to get used that often
23$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
Jun-05
Source: JPMorgan.
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
US Corporate Index Market Value
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
JULI Energy High Grade Market Value
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
24
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Debt Capital Markets Have Been The Largest Source Of Capital
Dec-15
Mar-16
Jun-16
Corporate Bond Energy Index Value Has Increased At A 12% CAGR For 15 Years
Sep-16
Dec-16
Mar-17
JPMorgan Developed Market Energy High Yield Market Value
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20….But That Has Not Gone Well
~$70 Billion Of Energy Fallen Angels In 2020
2020 Energy Fallen Angels
$32,218
$7,820 $7,816
$5,299 $4,995 $4,660
$3,500
$2,050
$875 $606
Occidental Western Gas Apache Continental Cenovus Energy EQT Corp EQM Midstream Rockies Express Patterson-UTI Ruby Pipeline
Petroleum Partners Resources Inc Partners Energy
Source: JPMorgan.
25Which Have Changed The Ratings Mix & Maturity Profile Of The Energy Market
Fallen Angels Increased The BB Mix By Over 2,000bp
High Yield Energy Market Value By Rating High Yield Energy Maturity Profile
Defaulted
CCC 2%
Split BBB
7% 1%
Split-B
3%
$49,520
Single-B
15% $41,348
$35,836
$31,499
Split BB
$26,601 $26,051
3% $24,752
$19,925
BB
69%
$12,960
$11,105
$9,774
$979
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2030+
Source: JPMorgan. Source: JPMorgan.
26Defaults Have Been Elevated And Will Likely Pick Up
Sector Default Rates
High Yield Energy Default Rates
Default Rate 20yr Average
13.35%
11.77%
11.14%
5.09%
1.94% 2.09%
1.42%
0.87% 0.68% 0.47%
2011 2012 2013 2014 2015 2016 2017 2018 2019 LTM
Source: JPMorgan.
27Default Rate Likely To Set New Record At Current Commodity Deck
Sector Default Rates
Optimistic Case Sector Default Forecast Pessimistic Case Sector Default Forecast
$40/bbl 2H20, $50bbl 2021-2022 $25/bbl 2H20, $40bbl 2021-2022
Total Defaults E&P Services Midstream Total Defaults E&P Services Midstream
35% 35%
31%
30% 30%
25% 25%
23% 23%
20% 20% 19%
17%
14%
15% 15%
13%
12%
10%
10% 10%
8%
6%
6% 6% 6% 6%
5% 4% 5% 4%
3%
1%
0% 0% 0% 0% 0%
0% 0%
2020 2021 2022 2020 2021 2022
Source: JPMorgan. Source: JPMorgan.
28Market Appears To Be Pricing In An Intermediate Commodity Outcome
Market Implicitly Pricing In Slightly Too High Midstream Default Rates
What today's High-Yield Bond spread implies for future defaults
Actual spread Excess spread Default loss Recov rate Default rate Cumulative Default rate 2.5yr Default rate
726bp - 326bp = 400bp / (100% - 40%) = 6.7% 32.5% 15.8%
What today's High-Yield Bond spread Ex Energy implies for future defaults
Actual spread Excess spread Default loss Recov rate Default rate Cumulative Default rate 2.5yr Default rate
631bp - 326bp = 305bp / (100% - 40%) = 5.1% 25.7% 12.2%
What today's Energy Sector spread implies for future defaults
Actual spread Excess spread Default loss Recov rate Default rate Cumulative Default rate 2.5yr Default rate
1,225bp - 326bp = 899bp / (100% - 20%) = 11.2% 43.6% 25.8%
What today's Exploration and Production Subsector spread implies for future defaults
Actual spread Excess spread Default loss Recov rate Default rate Cumulative Default rate 2.5yr Default rate
1,396bp - 326bp = 1070bp / (100% - 20%) = 13.4% 56.5% 30.2%
What today's Energy Services Subsector spread implies for future defaults
Actual spread Excess spread Default loss Recov rate Default rate Cumulative Default rate 2.5yr Default rate
2,238bp - 326bp = 1912bp / (100% - 20%) = 23.9% 79.5% 49.5%
Source: JPMorgan.
29Valuation Are Wildly Bifurcated By Ratings
Expect Wider Energy Discounts Than Historical Long-Term
High Yield Energy Relative Value BB Energy Relative Value
3000bp 1500bp 2000bp 1000bp
Differential (Rt. Axis) Differential (Rt. Axis)
2500bp 1250bp
High Yield Energy BB Energy
1500bp 750bp
2000bp High Yield Ex. Energy 1000bp BB Ex. Energy
1500bp 750bp 1000bp 500bp
1000bp 500bp
500bp 250bp
500bp 250bp
0bp 0bp 0bp 0bp
Jan-19
Apr-19
Jun-19
Oct-19
Jan-20
Apr-20
Jun-20
Feb-19
Mar-19
May-19
Jul-19
Aug-19
Sep-19
Nov-19
Dec-19
Feb-20
Mar-20
May-20
Jan-19
Feb-19
Mar-19
Apr-19
Jun-19
Oct-19
Jan-20
Feb-20
Mar-20
Apr-20
Jun-20
May-19
Jul-19
Aug-19
Sep-19
Nov-19
Dec-19
May-20
Source: JPMorgan. Source: JPMorgan.
Single-B Energy Relative Value CCC Energy Relative Value
3000bp 1750bp 6000bp 4000bp
Differential (Rt. Axis) Differential (Rt. Axis)
2500bp 1500bp 5000bp 3500bp
Single-B Energy CCC Energy
1250bp 3000bp
2000bp Single-B Ex. Energy 4000bp CCC Ex. Energy 2500bp
1000bp
1500bp 3000bp 2000bp
750bp
1000bp 2000bp 1500bp
500bp 1000bp
500bp 250bp 1000bp
500bp
0bp 0bp 0bp 0bp
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
Mar-20
Apr-20
May-20
Jun-20
Source: JPMorgan. Source: JPMorgan.
30Commodity Correlations Have Strengthened In Recent Weeks
Correlations Broke Down Meaningfully In April But Have Recovered
High Yield Energy Spread Vs. Crude Oil Prices – January 2018 - Today
3500bp
3000bp
2500bp
High Yield Energy Spread (bp)
2000bp
1500bp
1187
1000bp
500bp
R² = 80.4%
0bp
$0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00
Crude Oil Price (WTI)
Source: JPMorgan.
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J.P. Morgan Credit Research Ratings Distribution, as of July 04, 2020
Overweight Neutral Underweight
Global Credit Research Universe 27% 55% 18%
IB clients* 64% 64% 63%
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