• 141 days Could Crypto Overtake Traditional Investment?
  • 146 days Americans Still Quitting Jobs At Record Pace
  • 148 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 151 days Is The Dollar Too Strong?
  • 151 days Big Tech Disappoints Investors on Earnings Calls
  • 152 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 154 days China Is Quietly Trying To Distance Itself From Russia
  • 154 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 158 days Crypto Investors Won Big In 2021
  • 158 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 159 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 161 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 162 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 165 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 166 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 166 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 168 days Are NFTs About To Take Over Gaming?
  • 169 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 172 days What’s Causing Inflation In The United States?
  • 173 days Intel Joins Russian Exodus as Chip Shortage Digs In
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

  1. Home
  2. Markets
  3. Other

Watch CNY after OPEC's Move

Now that OPEC is resolute on allowing further descent in oil prices, risking fresh risks of deflation, the last thing the global economy needs is a weakening in China's currency. If China's softening growth means a devaluation of the yuan next year, then the beginning of the end of the commodities super rally would enter a new chapter, ominous for the world economy.

And with the CRB commodities index already posting its 5th straight monthly decline (not seen since 2008-09 crash), the transition from $72 brent and sub $60 could happen sooner than many anticipate.

OPEC maintained current production at 30 million barrels per day sending brent and WTI oil plunging 8% to $71.25 and $67.75 respectively. The Norwegian krone, Canadian dollar and Mexican peso were the biggest losing currencies. Just as Canada's economy was in the midst of delivering an impressive run of better than expected jobs figures, today's OPEC decision poses a key setback to the currency.


US oil independence

The changing oil landscape in the US of the past four years is best captured in the charts below, highlighting the 50% decline in US oil imports from OPEC, and the 132% explosion in US crude production over the same period. The supply-demand equation had no choice but but to weigh on prices, despite the dangerous concentration of geopolitical uncertainties in oil-production nations. The windfall gains on to US consumers and rest of oil-consuming nations will provide a much-needed boost to GDP equation, but the repercussions of falling oil on energy project loans and high yield debt risks becoming the new housing debt of 2015.


Tapering Chinese oil demand

China's imports for oil products in October fell to 2.28 million barrels, which is 50% lower than the high reached in December 2012. Since then, imports for crude oil have gone south, hitting an 11-year low earlier this year. Over the first three quarters of this year, China's total crude imports were up 8.3% year on year to 228.5 million mt, or an average of 6.14 million b/d, according to the data. The year-on-year growth rate outpaces the 5.3% seen over Q1-Q3 last year.

The decline in petroleum products reflects the surge in new refining capacity coming in online, which confirms the global supply curve. China's appetite for crude oil appears to have continued its relentless climb, but a closer look at the last six months suggests a tapering the rate of growth. February, June and October saw a declines of more than 13% over the preceding months. Some say Chinese oil demand is undergoing a structural decline resulting of flower consumption by the country's independent refiners, known as "teapot" refineries, which have started using more crude oil and a bitumen-blend feedstock over the last two years.


Beware of yuan weakness

With much focus placed on central bank policies, OPEC decision and the price of commodities pointing all to the direction of disinflation, China's currency will be the next key element to watch. USD has gained less than 1% against CNY so far this month. But if the yuan declines more than 10%-- brought about by fears of a hard Chinese landing- then to the deflationistas, the beginning of the end of the commodities story may be just starting.

US and China Oil Imports

Best

 

Back to homepage

Leave a comment

Leave a comment