Posted on Patreon, February 6th:
I asked a longtime friend who is a USG China-watcher for a no-kidding assessment of current energy usage in PRC. Energy usage is a vital sign for the economy:
China imports are down 20% with about a year and a half strategic stockpile in tanks inland and ships in port (China has a strange habit of keeping oil at sea). In fact, their oil use is down so severely that Saudi Arabia and Russia are coordinating their reduction in oil production (which is totally ridiculous because they are both one commodity economies and are directly confronting one another for customers to balance their national budgets).
This is from Chevron yesterday:
Working to lift markets this morning is the talk of supply cuts coming from OPEC+. Signs point to OPEC+ being willing to deepen cuts amidst the decreased demand caused by the coronavirus. OPEC+ is gathering for an urgent assessment of how Asiaâ€™s coronavirus may hurt oil demand; technical experts from the OPEC+ coalition will meet at the cartelâ€™s Vienna headquarters to evaluate the diseaseâ€™s impact.Russian President Vladimir Putin and Saudi King Salman bin Abdulaziz spoke by phone and discussed the grim situation of the global hydrocarbon market, the Kremlin said in an emailed statement; both leaders confirmed their readiness to continue cooperation to keep the global oil market stable.
Crude is recovering most of yesterdayâ€™s losses this morning, but markets are still reeling from last weekâ€™s declines.
Concern continues over the effects of the coronavirus on oil demand in China and Asia, but traders seem to have priced most of those concerns into the market already. The major remaining variable is how long will the crisis continue.
Crude prices are up this morning. Crude is currently trading at $51.07, a gain of 96 cents.Fuel prices are up. Diesel is trading at $1.6049, a gain of 2.7 cents.
Gasoline is trading at $1.4892, a gain of 1.6 cents.
Basically, China was already using less energy from the tariff war and now the virus has literally shut down the Yangtze River from Wuhan eastward to Shanghai (basically Saint Louis towards New Orleans– that’s how serious it is).
Keep in mind, the impact of China’s decline in energy use is driving oil prices down to the point many important national budgets cannot meet their obligations, which will put people in the streets protesting already compromised governments (Russia is the most vulnerable, then places like Venezuela are put in even more trouble, and the whole Belt/Road thing will fall apart).