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Phil Flynn--Flynn Energy - September 21Stormy Oil prices were hit hard on stormy seas as macroeconomic fears have overcome concerns about a supply shortage, at least for yesterday. Macro worries about the fallout from a possible default in China, fears that the U.S. might not raise the debt ceiling and uncertainty about the upcoming Fed meeting caused Monday’s meltdown. Yet it’s almost becoming cliche that after a hard sell-off on Monday to have a rebound on turn-around Tuesday. Oil prices are trying to bounce back after being under pressure because of the concerns about China’s economy due to the possible default of China’s biggest property developer. The company is named Evergrande and has $300 billion in debt and is due to pay out interest worth $83 million on a 5-year U.S.-dollar denominated bond, with an initial issue size of around $2 billion. There are fears of a possible default, especially if the Chinese Government fails to bail them out. Those concerns had people running for haven protection in the dollar put downward pressure on a lot of commodities. Many believe that China will step in and try to buffer the situation to avoid a larger fallout from a default. Yet S&P rating services isn’t so sure because China has not made it clear whether or not they are going to step up to avoid the default. There has been a lot of planning surrounding this possibility for some time. Chinese key stocks are holding value so there is a sense that this will not be a Lehman moment. The potential fallout for the rest of the Chinese economy has overshadowed the possibility of energy shortages in Europe and Asia and maybe here in the United States. Reports that U.S. oil and gas production in the Gulf of Mexico may be down longer than anyone had anticipated could raise some real concerns about shortages of supply in the future. There is the potential for sharply higher prices especially if we get a cold winter. Don’t make the same mistake that Europe did and not be prepared. |
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