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 Tuesday, April 25 2006 @ 12:30 AM EDT

Oilcast #27: Chinese Demand - The Dragon Is Back

   

OilcastsIn a bumper 22 minute show Oilcast examines the apparent return of Chinese demand growth. Why has it happened? Why is the market ignoring it? What will it do to prices? And why was Chinese demand flat so far this year?
We talk to Deborah White of Societe Generale, Mike Wittner of Calyon and Kevin Norrish of Barclays Capital.
Plus crude prices have dipped, why? ANWR drilling gets the green light and Senator Ron Wyden is in the news again. All this and more in the new size Oilcast...

Listen here (MP3 file, 8.5 MB)




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Oilcast #27: Chinese Demand - The Dragon Is Back | 18 comments | Create New Account
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Chinese Demand, among other things
Authored by: Tom Clearwater on Wednesday, November 09 2005 @ 12:01 AM EST
When the USA sees a portion of its oil demand literally eliminated in
destroyed cars and chemical factories, when the USA and IEA member
countries release stocks from strategic reserves to prop up stock and oil
markets, and when China reduces purchases abroad and draws down national
reserves, the price of oil, especially with lowered relative seasonal demand,
will decrease, as it has.

But this year's "autumn" price decrease has been lower than autumn
decreases of previous years (compare, especially, to 2004's autumn price fall
off-a-cliff). With world oil stocks diminished, and demand artificially and
temporarily reduced,* what will happen when USA + IEA countries + China
1) replenish reserves and 2) loosen restraints on or otherwise restore demand,
as they all will or must do?

* Walmart is China's largest customer; the larger six are countries. Has not
Walmart, in reasonable speculation, or its proxy, Mr. Bush Administration, or
both, said in some form, or hasn't China heard from its ear to the track
something of the nature of "China, buck up and help on oil price"?
Trade Deficit Widens to Record $66.1 Billion on oil imports
Authored by: PigOil on Thursday, November 10 2005 @ 08:36 AM EST

Foreign investors are going to start selling the dollar soon.

The story speaks for itself:

U.S. September Trade Deficit Widens to Record $66.1 Billion on Oil imports

Nov. 10 (Bloomberg) -- The U.S. trade deficit widened more than expected to a record $66.1 billion in September as oil imports surged and exports dropped by the most in four years.

The trade gap in goods and services followed a revised $59.3 billion deficit in August, the Commerce Department said today in Washington. Imports rose 2.4 percent and exports slumped 2.6 percent, the biggest decline since September 2001. The monthly trade deficit with China rose to a record $20.1 billion.

The nation imported a record $23.8 billion worth of petroleum as prices jumped after Hurricanes Katrina and Rita disrupted production on the Gulf Coast. A strike at Boeing Co. contributed to a 72 percent drop in aircraft exports. Oil prices have since receded, the Boeing strike was settled, and foreign economies are accelerating, suggesting exports may rebound and the trade deficit won't widen much more, economists said. Click here to read more
Price gouging???? What??
Authored by: PigOil on Thursday, November 10 2005 @ 03:09 PM EST


Update:

(The collective behavior exhibited by those who are pulling the market's strings can be classified as pathological; is it not a spectacular coincide that the day the US posts its largest ever trade deficit, the oil companies are "hit" with an investigation by the senate for price gouging? This is only a temporary diversion to calm and inflate the markets. The oil comapnies, as we all know, are untouchable. While the fundmental problem of diminishing oil reserves is not publicly tackled, quiet original solutions to keeping the markets afloat are being rendered...this will not last forever).

I think that today's sharp fall in the price of oil is due to the following:

Sheeler Praises U.S. Senate for Probe Into Price Gouging by Oil Industry , PRWEB

click here

Oil company executives deny price-gouging, By Susan Milligan, Globe Staff: Click here
Oil Prices
Authored by: Tom Clearwater on Thursday, November 10 2005 @ 06:07 PM EST
Daily movements in the price of oil are beyond me. Today in the
WSJ I read the following:

-- China will build its own strategic petroleum reserve which it will
probably fill in part from oil imports;

-- China's customs department announced that crude imports rose 21%
in October over October last year;

-- tanker traffic leaving the Persian Gulf has increased on both eastern
and western going routes;

-- shut-in oil and gas in the Gulf of Mexico are still at 50% of late-Sept
peak shut-in levels.

None of those tidbits suggest a reason why crude prices have declined.
One thing I have observed that makes some sense to me is that crude
prices have slid sideways and dropped since the US Govt + IEA
opened the SPR spigot. Am I wrong in saying that oil is still flowing into
the US from those decisions?
Chinese Demand
Authored by: Tom Clearwater on Thursday, November 10 2005 @ 06:54 PM EST
Hi (Adam?),

I had read that WSJ article re Chinese demand slackening. The article
seemed a little unclear to me as the title states that "China continues to
fill up on oil" while the text states that "Chinese oil imports have slowed
significantly." By "imports have slowed" I assume the authors mean
growth in imports have slowed?

The Chinese (or Chinese/Indian) situation, if I can call it that, looks to
me to carry broad implications somewhere in the range of the following
considerations. Chinese GDP growth is limited by, among other things,
access to and the price of crude. Crude consumption per unit GDP
output in China is much higher than it is in the US. This ratio, if historical
trends in other industrialising countries have anything to say, will change
only slowly, despite any small changes in oil consumption arising from
small circumstantial changes (like the need for less diesel generated
electricity, as mentioned in the WSJ article). US consumption is obviously
important to Chinese GDP growth, suggesting China walks a fine line
meeting needs for crude and not pushing prices so much that orders for
its products decline. I suspect China is currently investigating where that
line lies---investigating, that is, what is the optimal highest price for
crude. The evidence for this investigation might be found in policies
China enacted earlier this year restricting its own domestic consumption
of crude. If China did in fact restrict domestic consumption, as such, and
if China, in fact, currently has relaxed those restrictions, we probably will
see a rise in crude prices over the next several months. In my
imagination, I see a maximum, perhaps fluctuating optimal high price for
crude, assuming the market is now driven by limited supply. That price
looks to be higher than the present price if 4% current US GDP growth
has any bearing on the matter.
Oilcast #27: Chinese Demand - The Dragon Is Back
Authored by: PigOil on Thursday, November 10 2005 @ 07:35 PM EST


Tom,

You are correct, the oil imports the US is bringing into the country is/was keeping the price of oil at around $59.5, +/- .50 cents. However, once the news the senate was going to open an investigation into alleged price gouging by the oil companies hit the air waves, the price of oil slumped even further. This is overt manipulation. I would be surprised if any punitive and remedial action is taken against the all too powerful oil companies in the future. What tomorrow will bring no one knows, but be careful of any reports, even flimsy ones, that are made public before a readjustment in the price oil is made, upwards or downwards. In my opinion, the speculators and market manipulators have become very sloppy, leaving analysts baffled and forced to conjure up crackpot analyses to explain market behavior.

PigO
Oilcast #27: Chinese Demand - The Dragon Is Back
Authored by: Oilcasters on Friday, November 11 2005 @ 05:22 AM EST
Yes it's Adam here sorry...(should get a better login!)

The market does seem to be very split right now between bears and bulls. The bears are basically winning, as we mentioned there are a record number of short positions open on crude right now trying to...er...short the market.

Basically lots of investors who got in in June at $56 - be they hedge funds or those who take physical crude deliveries or just pure paper speculators - have a lot of profit to take.

It does seem to be that reason, compounded with the way the market often fixates on one particular issue, that is bringing down the price. Right now the entire market appears to be still fixated with the USA and its post-Hurricane situation.

So at the moment - today - there is fairly warm weather, enough crude on the market, a normal seasonal downturn in consumption (no air con, not much heating, less driving) that is allowing all this to happen.

But you can hear from show #27 that most anlaysts (well, all the ones i've talked to) are basically saying that the market is one step behind reality and that the situation is firming for a price rebound.

Barclays Capital technical analysts - let me have alook at todays figures - are saying this...

"The gap lower below the 200 day moving average is noteworthy since the market has not been below this trend proxy since 2002 (as shown above). A weekly close below this area is further confirmation of the ongoing bearish trend that is in play. The weekly charts suggest chart support at 56/55.90 so this seems to be the next big level to note. While extended, the 200 day, the recent series of daily lows and the four week pivot all congregate between 58.35 and 60 so selling pressure is expected on upticks into this area. Back above here is needed to begin to turn the trend but given the chart events it would seem that lower lows continue to be on the horizon."

But they are also saying that in the medium term support at $50 will send the market back up to test $71.50 again...
Oilcast #27: Chinese Demand - The Dragon Is Back
Authored by: Paradox on Monday, November 14 2005 @ 05:08 AM EST
CHINA MULLS DEREGULATING ENERGY PRICES

http://news.tradingcharts.com/futures/1/2/72367321.html

If this comes to pass, I expect it will really unleash the dragon and it's pent-up demand for oil ...

China has a 'middle class' equal in size to the population of the USA ....
http://www.chinadaily.com.cn/english/doc/2004-10/27/content_386060.htm

.... Paradox

P.S.
Adam .... I like the new format of including interviews of other industry experts.
What is the Dragon going to feed on???
Authored by: PigOil on Monday, November 14 2005 @ 02:52 PM EST


Kuwait's biggest field starts to run out of oil

AMEINFO.COM

It was an incredible revelation last week that the second largest oil field in the world is exhausted and past its peak output. Yet that is what the Kuwait Oil Company revealed about its Burgan field.

Click here to read more
Kuwait and China
Authored by: Tom Clearwater on Monday, November 14 2005 @ 11:33 PM EST
(Sorry for the double post, as you may discover, but I'm still feeling my
way around this site.)

Re Kuwait, its announcement is quite chilling.

Re China, its bottom economic line, like that of any other country,
evidences a direct correlation between GDP growth and crude
consumption. The new worldwide environment of limited worldwide
crude supply suggests domestically imposed restrictions in supply or
consumption = self imposed limitations to growth = unreasonable
national behaviour for the long haul. China's first step in deregulating its
oil industry was perhaps its move in loosening its currency, which
cheapens the price of oil to it. Walmart is currently in good shape, as is
the US economy; I don't see why China wouldn't test a new high in oil
price.
Oilcast #27: Chinese Demand - The Dragon Is Back
Authored by: Paradox on Wednesday, November 16 2005 @ 03:08 AM EST
a few interesting points in this audio interview regarding China oil demand growth into the future ....

http://www.npr.org/templates/story/story.php?storyId=5011339
Hey workers: Look on the bright side there is suicide. :(
Authored by: PigOil on Monday, November 21 2005 @ 09:12 AM EST



GM To Close 9 Plants, Cut 30K Jobs

(CBS/AP) General Motors Corp. announced plans Monday to cut 30,000 manufacturing jobs and close nine North American assembly, stamping and powertrain facilities by 2008 as part of an effort to get production in line with demand.

Click here

Commodity Prices:

OIL 57.73
GOLD 488.70

Sit tight, the future holds many more treasures and suprises for all!
... and Ford
Authored by: Tom Clearwater on Tuesday, November 22 2005 @ 11:42 PM EST
And Ford is now asking for government handouts, which amounts to a
capitalist breast, I suppose.

"WASHINGTON -- Ford Motor Co. Chairman and Chief Executive William
Clay Ford Jr. proposed a basket of tax breaks to help the auto industry build
hybrids and other alternative-fuel vehicles, as Detroit tries to loosen its
dependence on gas-guzzling trucks and sport-utility vehicles."
Oilcast #27: Chinese Demand - The Dragon Is Back
Authored by: steffen on Friday, November 25 2005 @ 07:00 PM EST
Very interresting with much substasial information. This explains much of my own confusion of how the oil market has behaved lately. I enjoy the format.

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