A similar problem exists with lender's reserve values used for credit judgments. Notwithstanding the persistent decline in oil prices, commercial banks still use escalated price decks. These often mirror or exceed slightly, the forward price curve on the Nymex. Today, a $30 WTI barrel is forecast by the futures market to be sold at $39 per barrel a year from now. Those escalations become very significant, again, because of the margin squeeze.
With global oil demand flat, or even declining somewhat, OPEC price "hawks" producing all they can, OPEC price "doves," Saudi Arabia and its near neighbors producing to regain market share, and inventories at record highs — is a price escalation likely? The banks believe it is.
No matter how you cut that cake, there will be a flood of hard defaults with bank lenders and bondholders over the coming few months.
Significant year-end losses and write-offs are also coming, and very likely more write-offs in the ensuing quarters. Auditors will likely start to qualify their assessment of whether firms are a viable "going concern." Those also constitute an event of hard default with most lenders. These specific events of hard defaults with a senior lender generally will create a cross-default on other debt styled securities.
Even more importantly, most oil-price hedges, price swaps/derivatives, also have cross-default provisions. Thus, counterparty credit risk begins to escalate as those parties are forced to disgorge cash payments on those instruments.