I have been saying that there may be growing evidence that China's red hot economy could be tapping the breaks if not slamming on them. Or as yesterday's Financial Times put it “China, the Panglossian scenario goes will save the world by buying up all the goods cash-strapped Americans can no longer afford. Recent data however, suggests the reverse. Has China finally succeeded in applying the breaks at the worst possible moment for the global economy? The Financial Times says that “December export growth decelerated to 22 percent year on year, compared with 26 percent for the full year. The year-end contraction in credit was even steeper.� They also say that “China's efforts to cool the economy are starting to bite. No wonder. Ordering banks to stop lending is a remarkably effective way of reigning in loan growth, even if it does little to curtail investment.� Yet the Times warns “for that very reason, however, the risks of over-shooting are mild-policy measures, unlike weak demand can theoretically be switched off and on at will.' The Times then finishes with the point I have been making by saying “Chinese demand will not offset a global slowdown. But the chances of the country skidding to an untimely halt are only marginally less remote.�

 

Speaking of chances, Dow Jones newswires reported that according to a Merrill Lynch survey of Asian Fund managers, China's growth expectations are at the lowest level since 2004. They also found that “global investors' risk appetite also decreased because the percentage of global managers overweight in cash was at the highest level since 2003 and the presence for global equities over bonds was at the lowest level since May of 2003."

 

What all of this is  saying to me is that the outlook for China oil demand and oil demand growth at the very least looks shaky. Remember that throughout this decade it has been China and its demand that has been the major driving force of rising oil prices! Not Speculators! Anyone that blames speculation for the bulk of the move this decade is not looking at the facts. They are living in the world of denial and fail to acknowledge what was going on in the market. And at the same token if China demand slows and their economy sputters as the US economy slows you will see the price of oil fall. And perhaps fall very hard. If the US falls into recession and China slows down we could be headed for one of the most significant corrections of this decade in oil.

 

Yesterday oil hit a four week low actually dipping for a short time in the eighties before bouncing back. That means that oil has fallen about $10 a barrel since that light volume surge to $100 a barrel. It fell yesterday because finally Gulf Coast supplies rebounded and the EIA showed that crude supplies finally rose by a hefty 4.3 million barrels. They were also helped by a big drop in refinery runs that dropped to 87.1%. The drop might be because  of poor refining margins. The build might have been more if it were not for that fact that we had a draw in the Midwest.

 

Gasoline supply still increased by 2.2 million barrels and are well above average for this time of year and distillates that are still uncomfortably tight increased as well rising 1.1 million barrels from the previous week.

 

Yet oil came out if its hole as the stock market showed some signs of life and didn't get totally hammered. Today the key will be the stock market and dollar and the words of wisdom from Fed Chairman Ben Bernanke.

 

It's going to be cold this weekend! So stay inside watch some football and sign up for the Phil Flynn energy blast and a free trial of Alaronenergies. Just call me at 800-935-6487 or email me at pflynn@alaron.com  to open your account!

 

We're short February crude oil  from apprx 9999 - stop 9600!!!

 

We're short February heating oil from apprx 255 - stop to 258.

 

We're short February RBOB from apprx 245 - lower stop 235!!!

 

Sell February natural gas at 840 -  stop 860.

 

Have a GREAT day!