China bubbles

July 8, 2015 07:52 AM
Daily Energy Markets Analysis

China bubbles, stocks decline, President Xi Jinping is happy (he feels fine). Those China bubbles make metals roll over with that feeling that we will to stop stock trading until another time. Those tiny bubbles make me feel fine...

China's stock market turmoil drove down commodities again today, but word that Greece formally requested a 3-year bailout package from the European Union is raising hope yet again that maybe, just maybe, Greece can be saved and we can continue to kick the Greece can down the road for another few years.

Yet, China may be a bigger problem. The People Bank of China cutting interest rates to a record low and forcing brokerage firms to buy billions worth of stocks with the promise that they would keep them solvent is not doing anything to stop the market rout.

The biggest fear for traders is the fact that they have stopped trading on half of the stock market, raising concerns that if they start trading on the highly leveraged market that may just cause a crash as margin calls will become too much for them to handle. Reuters reports that more than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 -- that is 45% of the market, or roughly $2.4 trillion worth of stock. The drop in China just drove industrial metals into oblivion.

Crude oil is getting ready for the Energy Information Administration's (EIA) inventory report and if it is anything like the American Petroleum Institute (API) version, we should expect to see that gasoline demand over the Fourth of July holiday lived up to bullish expectations. The API reported that gasoline inventories fell by 2.04 million barrels, which was thrice what the market was looking for. Crude supply fell by a slightly more than expected 958,000 barrels. The one bearish part of the report was a large increase in distillates raising concerns about the U.S. export picture against a backdrop of a rising dollar.

The EIA also released its Short Term Energy Outlook, which is still looking for a decline in U.S. oil output this year but increased output in the rearview mirror. The EIA said, "While U.S. crude oil production is expected to decline over the months ahead, total output in 2015 is on track to be the highest in 45 years. The forecast decline in U.S. monthly oil production through early 2016 is the result of low oil prices, which pushed oil companies to reduce their investment in drilling that resulted in the lowest number of rigs drilling for oil in nearly five years."

The EIA  outlook for gasoline: "U.S. gasoline demand will likely top 9 million barrels per day this year for the first time since 2007, which reflects record highway travel. Low gasoline prices and higher employment will contribute to more driving this year, boosting U.S. gasoline consumption an estimated 170,000 barrels per day higher than in 2014."

Natural Gas: U.S. natural gas marketed production growth is forecast to slow in 2016, but output is still expected to flow past 80 billion cubic feet per day for the first time. Natural gas production is increasing largely because of more efficient drilling techniques and strong demand for gas in the industrial and electric power sectors. EIA will be able to keep better track of natural gas production as more states were added to its monthly output survey that now covers about 95% of total U.S. gas production.

Electricity: Sustained low natural gas prices have driven the U.S. electricity sector to increasingly shift to that fuel for power generation. Natural gas-fired generation surpassed coal-fired generation for the first time in history this April. A slight shift back to coal generation is expected over the next year in response to projected higher natural gas fuel costs. Higher electricity prices and strong electric cooling demand is expected to increase the typical residential customer's summer electricity bill by 4.8%.

Renewables: The amount of U.S. electricity generated by wind is expected to increase almost 4% this year and then jump nearly 14% next year, while solar power is forecast to increase 42% and 22%, respectively.

Coal: Coal use in the electric power sector is expected to decline this year, as low natural gas prices make it more economical to run generating units on natural gas even in regions of the country that typically rely on coal-fired power plants.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil 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.