Does China Have Another 580 Billion Dollars Lying Around?
Energy Report
by Phil Flynn
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2008-11-11
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Yesterday Oil and the commodities got all excited as China announce a massive 580 billion dollar stimulus plan Yet oil gave up gave up all of the China inspired gains before closing higher on the day. Is it possible that the Market does not believe that 580 billion dollars is going to be enough? Just today Dow Jones reported that China's oil products imports fell to their lowest level in at least two years last month as low demand and price volatility curbed purchases of foreign fuel oil. Not only that Chinas domestic stocks of gasoline
and diesel hit record highs. Are we talking about potential glut here?
And it isn't just petroleum, it is coal as well. Dow Jones reports that Coal stocks at China's key coal transportation port in northern Qinhuangdao have reached a record-high level. They have so much coal they do not know where to put it as the amount of coal they have is in excess of the port's maximum designed capacity. In fact it is possible that the China domestic coal market could have a price collasp as they look to move excess supply. What a far cry from a year ago when in they were in the middle of winter coal shortage. Now some of that was due to transportation and the weather. China did have the coldest winter in over 100 years as global warming let them down, still the talk of a glut of coal is very telling as to the extent of China's economic slowdown.
Let's face it, if china is slowing down to the extent it seems to be then commodity bulls have to question every basic tenant of their belief that has built the bull market for oil. Sure it is possible that at some point this 580 billion dollar package they may be new money or may not may help improve the economy but it will not happen overnight. And there may be broader implications for the global economy and for people in the US. If china spends massive amounts of cash to rebuild their economy it is possible that their appetite for US debt will diminish. That comes at a time when the US government has to issue more debt to help pay for the bailout of our own financial system. China normally would be a major purchaser of that debt and their lack of participation may lead to higher borrowing costs in the US and perhaps higher interest rates. Higher rates mean a stronger dollar which could offset some of the co mmodit y price demand impact as well as current over supply. So even if demand for commodities pick up it may not impact prices as much as the previous environment that we
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Phil Flynn
Phil is one of the world’s leading energy 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.
Energy Report has contributed 227 issues.Our users give the newsletter an average rank of 8.4/10 (24 votes)
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