And this means a lot more activity on our own Gulf Coast. More on that in a bit, no wonder the Chinese are buying, there is a sale on oil prices.
"China, one of the world’s largest oil importers, bought nearly 100,0000 barrels of oil a day from the US in the first five months of 2017-10 times the average in 2016."
Wall Street Journal, Friday July 7, 2017.
And this means a lot more activity on our own Gulf Coast. More on that in a bit, no wonder the Chinese are buying, there is a sale on oil prices. Prices for West Texas Intermediate WTIC nudged over $47 Wednesday and then violently reversed under $45. As I write Friday July 7, in pre-market trading, WTIC is down $1.38 to $44.14. Prices bounced at $42 in mid-June but the action now makes me suspect $42 will fall shortly.
If that happens the head and shoulders pattern on the daily chart suggests a move to $35. Given the 6.4 percent drop just this week, that is not surprising.
Unleaded gasoline looks ready to reverse to the downside as well. Trading at $1.53 ,the last low was $1.40. The February 2016 low was way down at $.90. So prepare for cheaper gasoline prices.
Apache APA continues to acct as a bell-weather for the energy sector. It dropped 4.5% Thursday closing near the lows of $45.71. A break of $45, likely today, could well retest the February 2016 lows of $32-35.
Now back to energy marketing. China’s biggest suppliers are Russia, Saudi Arabia, and Angola. But the US may well ship over $1 billion in oil this year to China. OPEC has been attempting to limit production. And world wide, importers are likely happy to be able to deal with sources outside the volatile mid-East. In February of last year, I was interviewed by the South Korean television network. They were making another of several trips to Texas, anxious to find new sources of oil for their expanding economy.
But the trip from the Gulf Coast is indeed a slow boat to China. It requires six weeks to reach China from Texas rather than the three weeks from the Mid-East. So Texas oil has to be lower priced to account for higher shipping costs.
Occidental Petroleum recently sent one of its 2 million barrel tankers from Texas to the far east. Already 25 percent of its exports are from Gulf Coast Ports.
We have further real market proof of lower prices. Saudi Arabia lowered its price to Asian buyers this past Wednesday. Will this develop into a price war between the Saudis and the US? Will that make a US Saudi relationship a bit more uncomfortable? Will Saudi be able to sell 5 percent of ARAMACO next year if prices remain below $50?
Meanwhile stock prices retreated Thursday along with oil. The SPX finished at 2409.75, down about one percent. A break of 2388 would turn the daily trend down.
Meanwhile I am wondering how what will apparently be a shift to more electric vehicles will eventually affect the demand for oil. World wide electric generation is turning to natural gas. So let’s talk Tesla for a moment.
Social mood toward wonder boy Elon Musk is so strong that non-profit Tesla until Thursday had a larger market capitalization than GM or Ford. GM regained the top spot with $52 billion with TSLA at $50.7B, and Ford lagging at $44.5 B. GM has actually beat TSLA to the all electric $35,000 car with its new Bolt offering, claiming a 238 mile range. For urban commuters a daily re-charge would not be necessary. And Chevy has all those handy dealerships. TSLA has none. In Texas as state law requires a local owner. Volvo announced it will go 100 percent for hybrid or all electric as soon as 2019. As Chinese Greely owns Volvo, this is not surprising given the need to get China to do something about its massive pollution problem.
TSLA shares have doubled from last December’s low of $180 to just over $380. But in the last three days the price dropped from $360 to $308.83. Battery shortages still plague TSLA. And it is certainly no long distance touring machine with a limited range and lengthy re-charging required. TSLA has existed on government subsidies and consumer tax rebates. Its debt totals $9.6 billion with a debt equity ratio of 156. And that would be much higher if the stock drops back to some reasonable level.
Hmm, could TSLA be sending signals of irrational exuberance?
Follow Dennis at http://www.themarketperspective.com