A year ago today the Bank of China shocked global markets by devaluing its currency and helped set up the environment for an oil market crash. While the oil market looks weak due to seasonal factors and high inventories, do we have the same situation a year later that can set up an oil market crash? I think not.
Friday’s incredibly impressive U.S. jobs report sent the U.S. dollar and equities higher, with S&P 500 and Nasdaq ending the week at new record highs. The 255,000 jobs added in July and 292,000 in June, made the markets look beyond the weak release in May of only 24,000 additional jobs.
China's exports and imports fell more than expected in July in a rocky start to the third quarter, pointing to further weakness in global demand in the aftermath of Britain's decision to leave the European Union.
The United States is worried that China is retreating from pledges to open its economy to market forces as it tries to cope with a slowdown in growth, U.S. trade diplomat Chris Wilson told the World Trade Organization yesterday.
Crude oil might have seen some support from data out of China, easing concerns that Chinese oil demand was faltering. Reuters reported that China's June refinery output was up 3.2% from a year earlier at 45.08 million tons, or 10.97 million barrels per day (bpd)-- the highest on a daily basis ever, according to data from the National Bureau of Statistics.
The price point at $44 per barrell really has been a historic support for oil in recent years. In fact, in this millennium the only time oil has been below $44 a barrel is when the market is racked with economic doom and gloom. We saw that late last year and early this year as China economic fears sent oil prices crashing, driving global equity markets lower.
There has been a lot of distressing analysis regarding China’s economy and its impact on global growth, but the world’s second largest economy finally could be turning around. There is evidence that a Chinese economic recovery is near. This is in stark contrast to the majority of economists and analysts that say there is more pain in store for China. Many analysts are predicting the slowdown could escalate into a hard landing.