Crude Oil Finding a Bottom? The Great China-Olympics Canard
Yesterday we saw oil inventory build by almost 10 million barrels, the largest build since March of 2001. At the same time, we hear news that Tropical Storm Eduard is waning. But there is another storm forming on in the Orient: China.
You can see the optimism in the futures. Although we had a huge build in oil inventory, the futures are flat. Has oil halted its slide? Even energy stocks found a bottom last couple days. China will soon go back to full throttle and oil is going back to $150. Goldman Sachs said so.
Where I find flaw in this China-Olympics theory is that the media makes it out to be that there are only two consumers in the world of crude: the U.S and China. Everyone says that this decrease in demand is thanks to the slow down in China to clean up the air before the Olympics. Did everyone forget that the rest of the world, including emerging markets like Russia, Brazil, and India, have NOT slowed down because of the Olympics? To add, China did not close down production countrywide, but only in Beijing and a few other small factory and port cities. Beijing is less than 2% (1.7% by my math in 2007) of China's GDP.
While the rest of the world (92% of energy consumption) continues to consume at its pre-Olympic pace, oil has fallen $35. Yet, CNBC won't stop talking about the impending hurricane of demand that will come from China. I disagree.
As I have already said, most of China is still consuming at its pre-Olympic pace too.
Let's do a little guestimation: China accounts for 8% of world oil consumption (1/3 as much as the U.S). Let's say that Beijing consumption has slowed 50% (it didn't). By limiting traffic, it is estimated that only 1/3 of the 3.3 million vehicles will stay off the road daily. Non-discretionary consumption should stay flat. So, 2% of 8% is 0.16% of world consumption, or approximately 138K barrels a day of consumptions. Going back to our 50% decrease in consumption number, Beijing purposely decreased its Beijing consumption by 69K barrels a day. There goes the ramping up thesis. 40 factories here and there don't significantly raise that number in the context of world supply.
My point is that China's actions have not significantly, or even marginally, cut demand. However, in the same time frame, Crude Oil has fallen from $148 to $113. To say that the slowdown in China is because of the Olympics is a canard. Furthermore, China has curtailed gasoline demand by raising prices 17% in late June and OPEC has increased supplies.
The Chinese tried very hard to piece together their country before the world arrived. It is arguable that the super spike we saw in oil was because China tried to complete in months what they should have built in years. Now, I will argue that progress (and consumption) will slow from here. Growth tends to slow post Olympics in host countries.
Related Articles
|
Hedge Fund Jobs
Job Seekers: Search jobs by category, get job alerts by email or live feed, apply online See full list of jobs »
Employers: See all recruitment options, get applications online or by email Post a job »
Trading Center
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
This article has 5 comments:
- alajac
- 109 Comments
My Website
Aug 21 01:26 PM- Ronmac
- 50 Comments
Aug 22 01:19 AM- Kunst
- 628 Comments
Aug 22 10:51 PMDoing what? Exporting to the US? Or Europe? Or fulfilling domestic consumption? None of the above.
- Alpha Apprentice
- 7 Comments
My Website
Aug 23 11:55 AMTo add to Kunst comment, China at full throttle on domestic consumption won't bring us above $150
- alajac
- 109 Comments
My Website
Sep 04 02:51 AMI believe the market completed `Wave 1` of THE BIG ONE in July of 2007, and this new wave (down) will test the entire runup of the US stock market, so 100 years is not out of the question for Wave 2. And we don`t make new highs until after we`ve completed the Wave 2 pullback. So yeah, I`m looking at a long term downtrend that doesn`t leave people a lot of extra cash for discretionary purchases like of gold or silver, and diminished demand for commodities relative to increased production.
We`re screwed as long as we use the Federal Reserve`s debt-money. Gold is not the answer either, as people will hoard money backed by gold at a fixed ratio. So here is my answer
As we learned in `Quality Improvement Process 101`, the problem is never `the people`. The problem is always THE SYSTEM. Unless (and until) we fix THE SYSTEM, the same bad things will keep happening, over and over. The fault lies not with the borrowers and the banks who profit from THE SYSTEM, but with our ancestors for letting this SYSTEM get set up, and with ourselves for letting a SYSTEM continue which incentivizes activities that lead to our own destruction.
First thing we need for our NEW SYSTEM is our own, debt-free U.S. Government currency, backed by all the real estate within the nation`s borders (of which property the U.S. government is the actual owner...`legal` owners are granted `legal exclusive right of use` by an `actual` owner, valid until such time as the actual owner changes its mind or becomes unable to defend its ownership claim). Since banks will no longer be able to print the our new currency to cover their losses, and since we will no longer be dependent upon banks to maintain a flow of credit, banks should become more conservative in their lending and speculation. We should also get rid of FDIC insurance to further encourage such a change.
While we are at it, we should replace all income-related taxes with a 1/2% electronic transfer (aka debit) tax which will be avoidable by the use of cash. This will not only rid us of the IRS (saving us the billions of dollars currently spent on `tax reporting`), it will also end the current system`s penalization of work and entrepreneurism, and release for investment purposes untold billions currently spent on `tax avoidance`. This debit tax will not only be more of a tax on wealth than labor and be (arguably) voluntarily-paid, it will also act to discourage excessive short-term market speculation and will raise enough revenue to begin paying off the National Debt, a debt which will no longer be growing once we have switched over to our own debt-free currency. We will also apply any Federal Reserve dollars that are swapped for our new currency toward paying off the National Debt.
Since the U.S. government has, by granting `exclusive rights of use`, denied everyone free access to all of its property, and since the U.S. government has not compensated everyone for that `taking`, we should elect a Congress that will pay every legal U.S. resident `Adequate and Equal Just Compensation for Denial of Free Access to U.S. Property`, compensation which WILL FUNCTIONALLY REPLACE ALL FORMS OF PERSONAL AND CORPORATE WELFARE, SUBSIDIES AND BOONDOGGLES, including the rescindance of Federal Minimum Wage laws and a phase-out of the Social Security system. (Once everyone is getting `Denial of Free Access` compensation their whole lives, it would seem arguable that the vast majority of people will be able to save enough to be able to comfortably cease working at some point in their lives.)
As a starting point, $1000 per month (of the new, non-Federal-Reserve, non-Debt-Money, as described above) should be paid to every legal adult resident (compensation of minors should, of course, be held `in trust` to avoid incentivizing baby factories). Since everyone gets the same amount, this compensation plan is not wealth redistributive, but will give the least wealthy the biggest advantage (in terms of monthly percentage increase of wealth) and a better chance to `catch up` than the current system that keeps the rich getting relatively richer through good times and bad.
Once this NEW SYSTEM gets going, we should expect people in other countries to insist that their governments either emulate our NEW SYSTEM, or else apply for U.S. statehood as The Republic of Texas did in 1845.
Benefits of the new system should include better childcare, less poverty, less crime, cheaper government and a safer world. All in favor, help spread the word.
More by Pawel Kaczmarek