Hitting the Bricks!
Did China's economy hit a brick wall and what are the ramifications for the global commodity markets if they did?! Oil prices have some bearish news out of China to counterbalance all of the bullish forces coming out of Libya and the rest of the North Africa/Mid-East region.
First is was a stunning drop in automobile sales and now reports that China has a trade deficit $7.3 billion dollars in February which reportedly was the largest deficit China has had in almost seven years. Is this a sign that China's economy has hit a proverbial brick wall? The Chinese had been taking steps to cool inflation and up until now there were little signs that their steps were working. I am among many that have felt the steps they have taken have been less than adequate. Yet this stunning reversal of fortune is either a sign that the Chinese steps have begun to work or the other alternative may be that the bubble in China may be beginning to burst.
The dramatic halt may be due in part to the Chinese New Year, but the magnitude of the swings in economic data may signal something much more ominous. Every trader must monitor Chinese data very carefully to determine if the Chinese government can engineer a soft landing or if this Chinese plane is getting ready to crash. Perhaps the Chinese self serving currency manipulation has helped create an imbalance and now that the snow ball has begun to roll down hill, they may find it difficult to stop.
For the industrial metals, the charts look like the EIA reported another element and a possible slowdown for commodity demand growth. The next few days will be critical.
They will be critical as well for oil as well. The bombs in Libya has impacted supply yet the impact on WTI was somewhat muted. In part because the WTI market had priced in that risk and the fact that supply in Cushing, Oklahoma hit a record of 40.3 million barrels as the EIA reported that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.5 million barrels from the previous week. This Cushing cushion of supply softened the blow from reports of black smoke from burning oil from Ras Lanuf refinery realizing the markets fears.
Fighting in the port town in Braga and pipeline attacks is having an impact on supply. Reuter's News reports that Libya's oil port of Brega has run out of crude oil stocks due to weeks of unrest in the country, forcing crude tankers to cancel their shipments and travel to Saudi Arabia for work, an industry official told Reuters on Thursday.
My article about oil speculation has had an incredible response! Radio stations and reporters from all around the country are calling and reader response has been overwhelming! Tomorrow I plan to respond to many of the letters both pro and con so if you want your say respond today.
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 firstname.lastname@example.org.