OPEC Rejects Cuts – WTI Plunging by $4/Barrel
By: Tim McPartland,
OPEC has rejected any production cut and West Texas Intermediate is off by more than $4/barrel at this minute.
This is a potential further ‘gift’ to drivers and likelyif it holds for the next 24 hours a massacre for holders of MLP’s.
Update 7 pm
Global oil shares have plunged further today then they have in years. Canadian oil shares were off 5-15%. West Texas Intermediate was off as much as 7% today while Brent Crude was off as much as 8 1/2%.
With the U.S. markets closed today and having a shortened session tomorrow (Friday) it is likely that volumes on the stock exchange will be light and there is a high probability that volatility will run in the extreme zones for some issues. We would expect one of the largest slaughters of the year for MLP’s. Upstream companies will be the hardest hit, while midstream will get sucked down in the downdraft. On the other hand it is likely that transports, in particular the airlines, will move strongly higher.
NOTE–at $67-68/barrel for West Texas we have reached the point where there will no doubt be a slowing of exploration capital commitments by the upstream companies. While financials of these companies will NOT be immediately impacted it is likely that the markets will sell basis the future–not hold just because the companies are well hedged for the next year. You have to remember that access to capital will dry up as banks and lenders will be reluctant to loan against reduced values of collateral (oil in the ground).
We also believe natural gas focused upstream and midstream companies will be sold off tomorrow, even though their financials may not be affected much as of yet.
We strongly encourage investors that are not as of yet involved with the MLP’s to remain on the sidelines, BUT go through the upstream companies and find the ‘best in class’ for a potential buy in the near future. It would be strange if crude prices turned around and headed strongly higher (absent a black swan such as attack by Israel on Iranian nuclear facilities)
Additionally it is possible that the downdraft in upstream companies will be so strong that their preferred shares will get smacked down strongly as well. This would present a potential solid buying opportunity in select issues.