In the past two years, the price of oil has dropped by more than 70 percent. From its all-time high of $147 in July 2008, the price of a barrel of oil dropped to below $30 in February 2016.
The collapse of the price of oil has wreaked havoc on international markets while causing investors in oil futures, energy partnerships and other complex investments to suffer nearly-unthinkable losses. However, many individual investors have suffered substantial losses as well.
For the average investor, the price of oil affects their portfolio in a couple of different ways. One of these is the declining price of oil and gas stocks – many of which were at one time considered among the safest blue chips on the market. Another is the high-yield corporate bond market. Like oil and gas stocks, many investors are finding that bonds that used to be investment-grade are now falling into junk bond territory.
There is a third type of investment that the collapse of oil has affected as well: short-term bank bonds that are linked to the price of oil.
About Oil-Related Bank Bonds
Last year, Bank of America, Citigroup, J.P. Morgan Chase, Morgan Stanley and other major banks issued hundreds of short-term bonds with returns linked to the price of oil. Many of their customers for these bonds were brokers and financial advisors – in addition to individual investors. With the price of oil plummeting, one bond expert told the Wall Street Journal that the “vast majority” of these bonds are now underwater, with some “need[ing] a 50% to 100% jump in the price of oil from today’s levels to get back to break-even.”
While these bonds offer potentially-significant (and legitimate) returns, they also have enormous downside potential. In some cases, the bonds are structured so that investors’ potential gains are capped while they face the prospect of unlimited losses.
Have You Lost Money in a Short-Term Oil Bond?
While most of these bonds have yet to mature – meaning that some investors could recoup their losses if the price of oil rises substantially before the end of the year – many individual investors are facing the prospect of major losses. Without a secondary resale market for these bonds, they are essentially forced into a wait-and-see approach.
With the price of oil in such a state of uncertainty, investment advisors and broker-dealers should be exercising extreme care before recommending and selling oil-related securities to their clients. They also need to be monitoring investors’ accounts and taking proactive measures to help investors avoid substantial oil-related losses. If you have lost money in a short-term oil bond or other oil-related investment, you may have grounds to seek to recover your losses. Contact an investment fraud attorney with Zamansky LLC to learn more.
Zamansky LLC | Lawyers for Individual Investors Nationwide
The attorneys at Zamansky LLC represent individuals who have suffered stock market and other investment losses. With offices in New York City, the firm’s attorneys represent clients nationwide. If you received bad advice or believe that your investment advisor is mismanaging your portfolio, contact us for a free consultation today.