Trouble for Chinese Real Estate Developer Spills into Worldwide Market
September 20, 2021
The Baker Hughes Rig Count number released on Friday had crude oil rigs up 10 to a total of 411 total oil rigs. Last year at this time there were 179 rigs. There has been a lot of talk about shale oil companies being very disciplined and having financial restraint to become more profitable and attractive to investors, but the higher prices on crude oil do provide some incentive to produce more.
The market struggled on Friday to get some upside follow-through mainly because of the stronger US dollar. But prices did not break down and if the dollar continues to trade higher energy prices may at first settle back into a range. The dollar is higher this morning and energy prices are lower feeling the selling pressure. Prices are also lower as more production comes back online after the recent hurricanes.
The Commitment of Traders report showed that money managers in the oil markets increased their net long positions for a second consecutive week in the week ending September 14th. The funds increased their net long positions by 27,312 contracts on the week to 306,922 contracts on a combined NYMEX and ICE futures and options basis.
US stock futures are down this morning after the Hang Seng Index in Hong Kong sold off over 6% to a 52-week low. The drop in stocks is due to troubles in a Chinese property development group, Evergrande, which is the largest real estate management company in the world. There are many reports that they are on the verge of bankruptcy and the Chinese government doesn’t appear willing to bail them out. The concerns here have caused a wave of selling in riskier assets around the world. Today is likely to be a risk off-market, as traders lightening up their portfolios and this has caused selling pressure in commodities as well. Some see this situation as being similar to the Lehman Brothers crisis here in the US that cause the market collapse in 2008.