Oil prices drop and two banks implode - why?

NVDL: Given the fundamentals for oil right now, we should be seeing $5 to $10 upward marches in prices, not downward. I've already referred to 5mbpd being wiped out of US production. That's a huge chunk. It turns out that the attention paid to speculators in the late rise of the oil price (to $147) has set off a debt implosion. Banks were hedging their debts by buying oil futures and this could succeed only as long as everyone kept doing it, and prices kept increasing. When that option dried up, thanks to stricter vigilance these banks ended up high and dry.

Since the risk is systemic, expect more institutions to break as credit dries up. Oil fundamentals will come knocking on our doors in the next few months, but by then Wall Street will be looking like humpty dumpty.

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How worried should people be about their deposits?

(1) Some of the organizations with problems were no doubt speculating in oil futures. Once the prices started to drop, the balance sheets of the organizations were affected, and they suddenly needed more capital. - The OilDrum

clipped from www.theoildrum.com (2) As the companies who speculated in the oil market (all of them, not just the particular ones having problems today) try to unwind their positions because of margin calls, they drive down the price of oil in the futures market. That is likely why we are seeing declining oil prices, at a time when fundamentals would say they should be rising. (3) As the price of oil and food rises, people have less money to pay debt of all kinds. This has contributed to the rising mortgages defaults, and is helping to drive down home prices. This is very closely tied to problems of banks and other financial institutions.