What China slowdown?

If China's economy is so bad than why is their demand for copper and oil (NYMEX:CLM14) so strong? Copper is soaring and oil is up modestly as China demand surprises and the results of an election in India where it is expected that the new government might be more monetarily accommodative. Shanghai copper stocks fell 13,485 tons last week and Monday according to Reuters, the key Indian equity indices—the Sensex and Nifty—both hit lifetime highs. Many analysts attribute the surge to the expectation that India will vote for a BJP-led coalition government headed by Narendra Modi, who is seen as a business-friendly leader supportive of economic reforms. 

Those reforms may mean more gold and metals imports as well as oil. Gold imports into India declined over 74% to $1.75 billion in April due to restrictions by India's current government and a new regime might lift gold import restrictions.

As for oil, demand in China is also strong as it was reported last week that Chinese crude imports in April increased by 22%. There was a lot of talk of China filing its strategic reserves and building supply ahead of what they see as a coming price spike.

Oil overnight is still bid after a pro-Russian separatists claimed victory in a weekend referendum on self-rule in the eastern Ukrainian city of Donetsk. The vote was condemned by Ukraine's government and the West and may hit Russia with more economic sanctions today. Oil traders have priced in a lot of this risk and really are waiting to see what happens next.

Natural Gas (NYMEX:HPM14) is still wobbly after last week's report and long term forecasts for a cool summer. Still in the big picture we still have to produce a record amount of supply by next winter. Yet last week maybe the way I phrased it I was perhaps putting too much responsibility on producers.
 

I received a letter from Greg Allen the President of AVIVA ENERGY CORP. that went as follows:

Phil,

After one of the coldest winters in recent memory, prices spiked, but few pilot lights went out for lack of gas. The issue in my opinion was lack of transmission and distribution capacity – not lack of storage or supply. To paraphrase, you state that producers are, "going to have to do a lot better if we are going to get back to adequate storage." I disagree, producers are doing their part, it is the utilities and transmission pipelines that are failing to keep delivery infrastructure up to date.  

We didn't even come close to being 'out of gas.' We can close to a failure to deliver available supplies to consumers. Maybe we need to rethink what "adequate storage" really means, versus what constitutes prudent "gas delivery capacity", and how that should be measured and improved.

Best Regards,

Greg Allen

President

AVIVA ENERGY CORP.

 

Greg is right! I have no doubt that producers are ready willing and able to meet demand but it takes two to tango so to speak. The abundance of gas and mild weather means that we still need to get going on the infrastructure to meet demand.

Yet still there is a price component as well. If prices fall sharply than we could see some production fall offs and that should mean that we are going to put is a floor at some point unless we see storage grow. 

 

Ed note: Watch Phil Flynn interview Futures' new editor-in-chief Dan Collins about how the magazine is covering topics in a way that no other news organization can, and how the magazine is the premier resource for today's modern trader.

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.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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