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The Energy Report

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Breakable China

Wed, Nov 19 2008, 16:56 GMT
by Phil Flynn

Alaron

Breakable China: China is a lot more delicate than many people thought. China the main driver of the energy demand and the economy that was supposed to be immune to slowing seems to be slowing more. Let just say it, China is breaking or east least putting on the breaks for oil demand. On Monday we wrote about the report that said that China's demand for oil is falling sharply. Oil inventories are surging in China as the slowdown in the global economic downturn is breaking China’s growth. We heard from the China National Petroleum Corp who lamented that that production at the nation's top oil producer has been "adversely" affected. Why because the average Chinese are feeling the pinch of this crisis. China after raising prices earlier this year to cool demand is now talking about lowering prices to help the struggling Chinese economy. Dow Jones is reporting China is ready to reform its oil pricing mechanism again in 20 days on refined oil products.

Another sign that the Chinese economy is struggling is that fact the Chinese are driving less and buying fewer cars. Take for example this story on Dow Jones Market Watch that said that Toyota has cut its automobile sales forecast in China by 14.3% this year. That means a lot more bikes on the road in Beijing! It is being reported that the automaker is now targeting 600,000 vehicle sales, about 100,000 less than its previous forecast. The revised sales target reflects a 20% year-on-year growth in sales, down from its previous forecast of 40%.

This explains in very clear detail why oil prices have fallen as hard as they have. The oil markets justification for record high oil prices earlier this year was in part the fact that the every person in China and India would buy a car and drive the world out of oil. Now that one automaker has reduced sales by 100,000 cars you can imagine how far other companies sales might fall.

And that was not the only story from China. Dow Jones says that reports that the chief executive of China's Cnooc Said that oil companies are cutting back on new projects due to a drop in oil prices and a weaker overall economic situation. "If you make projections with oil around $50 or $55 a barrel for the next three years, a lot of plans will be suspended," Fu Chengyu said at a meeting with business leaders. "Some projects were budgeted with oil prices around $90 or $100 a barrel, and this is an entirely different cash flow," he added. "There just isn't the cash for these projects anymore." A report Tuesday in the Financial Times quoted Fu as saying the world's national oil companies see oil prices falling further to about $40 a barrel.

Short January on the Double rollover at apprx 5760!!! Stop should be 6100!!!

We're long December heating oil from apprx 18000 if you did not raise your stop to 18100 you were stopped apprx 17600. But Dec Heating oil at 16700 stop 16300

Sell December RBOB at 13600 - stop 14400.

Buy December natural gas at 515 - stop 500.

Have a GREAT day!

Published on  Wed, Nov 19 2008, 17:05 GMT