Oil prices start to fall as uncertainty grips the U.S. auto industry and the upcoming G20 meeting is giving support to the dollar. How does the ongoing U.S. auto circus effect global markets? Dow Jones Market Watch reported that “Asian markets tumbled Monday as risk-averse investors dumped equities on reports the Obama administration has forced the departure of General Motors Corporation Chief Executive and suggested a "quick and surgical" bankruptcy for struggling U.S. car makers.” Falling foreign equities especially in China, a place that is one of GM’s few success stories. GM dominates car sales in China and if they sell fewer cars the Chinese might use less oil.
Globally the market place is still looking at China as a bellwether of future oil demand and in that vein I thought this Dow Jones story was interesting. With China oil demand down 15% year over year Dow Jones says that China is set to export more gasoline in April versus this month with continuing de-stocking efforts. Despite recovering domestic demand, the country’s inventories are still at record-high levels as refineries keep crude runs high due to good margins. Sinopec shows interest to export more from South China to Vietnam to draw down stocks, regional traders say. China estimates exports to be around 210,000 tons gasoline in April so far, but may export as much as 300,000 tons in the end if satisfactory bids can be found with country exports about 150,000-180,000 tons in March. China’s over supply of gasoline means that initially demand growth from China with oil will continue to disappoint.
Of course demand may not matter to the price if the U.S. dollar continues to fall. That is not the case today and that rebound in the dollar is helping to pressure oil back towards the important $50 a barrel area. The G20 may determine the dollar’s fate. The Obama administration is calling for more stimuli while many other nations want more regulation. If the President does not get his way that could send the dollar lower driving back up the price of oil.
We have said that long term position traders need to be patient and it appears that patience is now paying off. Oil needs to retry the lower levels of support before we get a solid bottom. If nothing comes out of the G20, the dollar should again move lower and commodities at that point will start to bottom.
Phil Flynn is vice president of Alaron Trading and a Fox Business Network contributor. He can be reached at (800) 935-6487 or pflynn@alaron.com .
