The oil price has declined to its lowest level in seven months as the market remains concerned of a continued supply glut in the market. After bottoming in July, the oil production in the United States has recovered by 0.9 million barrels per day that undermine the OPEC and participating non-OPEC countries’ efforts to reduce production supplies by 1.76 million barrels per day. In addition to that, the production also increased in the two deal exempted countries, Nigeria and in Libya, over the past five months, which also undermines the efforts made by OPEC producers.

The North American benchmark WTI is currently trading at $42.5 per barrel and North Sea benchmark Brent is currently trading at $2.3 per barrel premium to WTI. In a recent report, International Energy Agency (IEA) warned that US oil production remains the biggest threat to price recovery, so, it is of utmost importance to keep an eye on the stress level among oil producers in the United States from lower oil price. One important way to look at it would be to monitor the bond prices or the energy junk bond prices and lately, it has been showing signs of stress.

The premium investors demand to hold the debt of speculative-rated energy companies rose to 5.45 percentage points on Wednesday, from 5.24 percentage points on Tuesday, and 4.97 percentage points on Monday, according to Bank of America Merrill Lynch’s bond indices, while the broader junk bonds spread remained relatively unchanged. Spread or the premium, which measures the difference in yield between corporate bonds and Treasuries of the same duration, have jumped by 1.56 percentage points from the lows of the year marked in late January.