The bad news just keeps coming for BP — this time from Bank of America. A high-level executive at the bank has ordered its traders not to enter into oil trades with BP that extend beyond a year from now, Reuters reports, citing an unidentified market source familiar with the order.
Reuters said Bank of America did not give a reason for banning trades on oil contracts that expire after June 2011. But doubts appear to be growing about BP’s ability to fulfill its longer-term commitments as it faces billions of dollars in costs and potential liabilities from the oil disaster in the Gulf of Mexico. Earlier Tuesday, Fitch Ratings downgraded BP’s long-term credit rating to BBB from AA and lowered its outlook to negative.
The reported move by Bank of America is likely to have little impact on BP on its own because, as Reuters notes, it is a smaller trader in the oil markets. Still it is symbolic of the shrinking confidence in the oil giant.
Reuters details the bank’s increased caution over BP:
A source familiar with BP’s trading operations said they have not been curtailed since the oil spill in April. BP wasn’t informed of any new trading limits with BofA, which is a relatively small player in oil markets and not among BP’s top trading counterparties, the source said.
Economic Policy Journal had a post we linked to on May 25:The source familiar with the BofA directive said it reflects a cautionary stance toward trading with BP. However, the directive did not reference any reduction in overall credit volume the bank would extend to BP.Spokesmen for Bank of America and BP declined to comment to Reuters on the trading limits....MORE
Limiting the duration of trades with a counterparty is one way in which banks can seek to protect themselves against risk that a company will be unable to meet its long-term obligations.