OPEC Agreement Seen Aiding Energy Banks

The U.S. comptroller of the currency said Tuesday that U.S. banks with large oil and gas loans should be helped by the OPEC accord aimed at shoring up world oil prices to $18 a barrel.

“Obviously the improvement in the price of oil is going to help,” Robert Clarke, who was an attorney in Texas before becoming comptroller, said in an interview.

“I am inclined to agree with people who say an $18-a-barrel price is not going to result in a dramatic increase in drilling or the revival of the (oil and gas drilling) service companies, but I think it is going to have a psychological effect,” Clarke said.

Twelve of the 13 members of the Organization of Petroleum Exporting Countries agreed over the weekend to lower output in an effort to increase the world price of oil to $18 a barrel.

The accord quickly helped boost world oil prices, which had risen steadily over the past two weeks from about $15 a barrel to $17 a barrel in anticipation that the oil cartel would agree to reduce production. Prices rose Monday to about $18 a barrel before slipping back to just over $17.

Regulates National Banks

Clarke, who in his post as comptroller regulates national banks, said a higher oil price means U.S. banks will not have to continue building reserves against their energy loans, which will help improve their earnings outlook.

“On oil and gas production, I think (the higher price) materially enhances the quality of those loans and it may put some of them back into the position of being performing,” Clarke said. “It could generate enough cash flow where some of the currently non-performing loans will begin to perform.”

Some question remains as to whether OPEC will be able to stick to its production accord in the long run. Past agreements have fallen apart because of widespread cheating, causing world crude oil prices to slide.

Clarke said that if prices can stabilize around the $18 level, it could encourage more drilling in the United States.

Not So Upbeat on Farm Sector

“I don’t think it’s going to happen overnight, and I don’t think it’s going to be dramatic,” Clarke said. “But I think it is a positive sign for the industry.”

Clarke was not as upbeat for farm banks, which have been hard hit by the economically depressed agriculture sector.

He said that the decline in the farm economy is not as steep as it has been but that he saw no signs of improvement.

“There are still banks in the farm areas that are struggling,” Clarke said. “If there are not some outside sources of capital, I am afraid there are going to be some more farm bank failures next year.”

So far this year, about 140 U.S. banks have failed.