From 2010 through 2022, the US Energy Information Administration (EIA) calculates that global oil demand grew by 10 million barrels per day (Mb/d). Over 60% of the demand growth was due to China's phenomenal economic growth. For context, American demand increased by less than 10%. The graph below shows that China once drove global oil demand, but that is no longer true.
Given the impact oil prices have on inflation, this is an essential macroeconomic factor to consider over the next five to ten years. Furthermore, a report by China's national oil company, China National Petroleum Corporation, says China's demand for oil could peak next year—five years before they had expected it to plateau. The EIA expects a similar peak, with demand from China only growing by 300,000 barrels per day next year.
The reason for their diminished demand growth is twofold. First, China has embraced alternative energy sources. Second, and more impactful, China's economy is maturing. Accordingly, its high economic growth rates, which are not sustainable, are fading. As China's economic growth simmers at 5% or below and its use of alternative energy sources increases, the driver of oil demand will no longer play that role. If production continues to rise, the price of oil could be under continued pressure in the years ahead.
What To Watch Today
Earnings
Economy
Market Trading Update
As discussed yesterday, the portfolio rebalancing and distribution period for funds is underway. As expected, this has led to rather sloppy market action, with some of the high flyers getting sold and underperforming companies getting bought. With the previous overbought condition somewhat reversed, the markets will likely bottom between the 20-DMA and 50-DMA. As shown, the 20-DMA will be the first important test of this pullback. The action has been nothing dramatic or abnormal over the past two days, and we could expect to see it continue into the end of the week. As shown, the MACD "sell signal" is approaching, which will apply further downward pressure to the market in the near term.
Continue to manage risk. This is the pullback we repeatedly discussed over the last two weeks, but the good news is that it will set the market up for the rally into year-end. Remain patient for now.
Curveballs For 2025
As if the last five years haven't been unpredictable enough, we welcome an unpredictable president back into the White House. Deutsche Bank has compiled a list of five "curveballs" to help us gather our thoughts around potential outlying events. These are market-related events that could significantly impact investors' returns. Their list is as follows:
- The S&P 500 returns more than 20% for a third year or flops.
- AI overshoots or undershoots predictions.
- The US and China strike a grand bargain on trade.
- The dollar reverses its recent strength.
- The Fed ends up hiking rates, inflation reignites, and/or bond vigilantes finally take fright at the size of US budget deficits.
As we approach year-end, plenty of forecasts and similar curveball lists will become available. Our simple advice, which has primarily held since 2020, is to expect the unexpected.
Portfolio Rebalancing and Valuations: Two Risks We Are Watching
While analysts are currently very optimistic about the market, the combined risk of high valuations and the need to rebalance portfolios in the short term may pose an unanticipated threat. This is particularly the case given the current high degree of speculation and leverage in the market. It is fascinating how quickly people forget the painful beating of taking on excess risk and revert to the same thesis of why “this time is different.” For example, I recently posted on “X,” which showed a visual of the 2021 market surge versus 2023-2024. While this time may be different, don’t be surprised if it ends the same.
Tweet of the Day
“Want to achieve better long-term success in managing your portfolio? Here are our 15-trading rules for managing market risks.”
Please subscribe to the daily commentary to receive these updates every morning before the opening bell.
If you found this blog useful, please send it to someone else, share it on social media, or contact us to set up a meeting.
The post China Is No Longer The Marginal Buyer Of Oil appeared first on RIA.
Full story here Are you the author?You Might Also Like
Housing Affordability Brings Market To A Standstill
2024-12-09
Housing affordability helps explain why residential real estate transactions have reached a standstill. Over the last five years, housing prices have surged. Per the Case-Shiller 20 City Home Price Index, home prices from 20 of the largest cities have risen between 33% and 80%. Over the same five-year period, mortgage rates jumped from 3.68% to …
In Store Sales Falter Despite A Good Black Friday
2024-12-03
Based on early Black Friday sales estimates, sales were strong, but shoppers were much more inclined to take advantage of online sales than go to the malls and stores in person. Mastercard SpendingPulse estimates that in store sales only grew by 0.7% from last year, while online sales rose by nearly 15%. Facteus, another data …
Credit Spreads: The Markets Early Warning Indicators
2024-11-26
Credit spreads are critical to understanding market sentiment and predicting potential stock market downturns. A credit spread refers to the difference in yield between two bonds of similar maturity but different credit quality. This comparison often involves Treasury bonds (considered risk-free) and corporate bonds (which carry default risk). By observing these spreads, investors can gauge …
Bitcoin Is Entering Volatility Season
2024-11-25
Since the election, Bitcoin has risen nearly 50%. While Bitcoin investors are licking their chops, believing the magnificent rally will continue, they need to realize that Bitcoin is entering a period of pronounced seasonal volatility. The graph below from Sentimentrader shows that the recent performance has tracked the typical performance for the time of year. …
Trump Presidency – Quick Thoughts On Market Impact
2024-11-08
The prospect of a Trump presidency has led to much debate and speculation about how markets might react. Depending on what policies are eventually passed, there are potential risks and opportunities in both the stock and bond markets. While the market surged immediately following the election, many potential future headwinds may impact returns from economic …
Bull Steepening Is Bearish For Stocks – Part Two
2024-09-04
Part One of this article described the burgeoning bull steepening yield curve environment and what it implies about economic growth and Fed policy. It also discussed the three other predominant types of yield curve shifts and what they suggest for the economy and Fed policy.
Persistent yield curve shifts tend to correlate with different stock performances. With the odds growing that a long bull steepening may be upon us, it’s incumbent upon us to quantify how various stock indices, sectors, and factors have done during similar yield curve movements.
Limiting Losses With Yield Curve Analysis
Stocks spend a lot more time trending upward than downward. However, in those relatively brief periods where longer-term bearish trends endure, investors are advised to take steps to reduce
Risks Facing Bullish Investors As September Begins
2024-09-03
Since the end of the “Yen Carry Trade” correction in August, bullish positioning has returned with a vengeance, yet two key risks face investors as September begins. While bullish positioning and optimism are ingredients for a rising market, there is more to this story.
The Bull Market – Could It Just Be Getting Started?
2024-07-23
We noted last Friday that over the previous few years, a handful of “Mega-Capitalization” (mega-market capitalization) stocks have dominated market returns and driven the bull market. In that article, we questioned whether the dominance of just a handful of stocks can continue to drive the bull market. Furthermore, the breadth of the bull market rally has remained a vital concern of the bulls.
Tags: Featured,newsletter
