Oil tumbled the most in two months yesterday after output talks between the world’s biggest producers failed to produce a deal to curb production.
It’s worth remembering that hopes for some kind of agreement helped oil rebound from a low of $26 in February to over $42 last week.
That recovery is now under threat — and with it any hope European banks had of batting away investor concerns over their exposure to the energy industry.
The patchy disclosures provided by the region’s biggest lenders suggest that exposure totalled $200bn (€177bn) last quarter. That is more than US banks’ estimated $123bn.
It will also make a quick return to broader normality on financial markets after a tough first quarter less likely, with hedge funds likely nursing losses and more volatility ahead.
European banks need to follow their US counterparts and provide more transparency on their loans to the industry.
US banks booked over $1bn of additional provisions for energy-related losses in the first quarter. Some firms were more aggressive than expected.
Of course, banks are perfectly entitled to dangle the carrot that losses will not turn out to be as bad if bearish fears of oil sliding to $20 to $25 per barrel fail to materialise.
But with oil now at $39 per barrel, it makes little sense to make a show of defiant optimism.
The credibility gap would only widen for European banks, which have given very little clarity on estimated losses ahead.
Guessing the direction of oil prices has wrong-footed even the best experts in the field, who have bet on everything from $20 oil to $200 oil.
Banks should not play that game. But they should use this earnings season as an opportunity to open up.