Energy report: Chinese demand a mystery

The Chinese oil demand teaser

One day China’s oil demand is bad and the next, good. Welcome to another mystery from The Middle Kingdom. Yesterday oil prices were pressured on reports of bulging inventories in China and weak demand. Platts reported that Chinese oil demand in August slid 5.4% from July. Platts said that China's implied oil demand totaled 33.02 million metric tons in August vs. 34.92 million metric tons in July. Oil refiners in China are reporting that demand is still weak. Reuter’s news reported that Chinese oil company Sinopec had sales of refined oil products still lower than one year ago. Reuters says that despite a moderate inventory draw in August, China's diesel inventories had been building up faster than gasoline had in past months, reflecting the slower consumption for the main transportation fuel used by Chinese industry and trucks.

Of course that was yesterday. Today oil is getting a boost on a report that China oil imports are the second highest ever. Chinese oil imports increased by 8% to 17.92 million metric tons giving oil bulls hope that demand in China is not as bad as feared after yesterday.

The truth is that China’s oil demand is largely dependent on the strength of the dollar. The weak dollar has encouraged China to import more oil than they need. At the same time, it has the added benefit to hedge China’s massive bond and dollar holdings. If the dollar increases in global value, China will not need to purchase as much is the short run as supplies are plentiful. The bottom line is: it will not be China that drives the next move in oil, it will be the Fed.

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

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