Like many, we have been expecting US politics to have a big influence on the outcome of how markets will finish come the end of 2024. Yet, not even the most battle weary and cynical hack could have imagined the turn that election campaigning would take on Saturday when an assassination attempt was carried out on the almost guaranteed Republican candidate, Donald Trump. The circumstance and intrigue of this evil act will be fully autopsied elsewhere, and no doubt used as another additive for what is a race to the bottom. Markets on the other hand will probably become a little more defensive. This morning the US Dollar has perked up with yields and Gold, not only on uncertainty, but with a prevailing thought that this might just work out as a positive to The Donald which comes with a Whitehouse that increases debt and inflation. 

For oil prices, there are no untoward movements other than the usual early hours of late Sunday/early Monday jockeying. For much of last week there was a continuance of belief in that the third quarter would keep riding to the rescue of bulls. However, in the end, and partly due to the last day of 'rolling' from funds that adhere to such things, prices disappointed. The five main futures contracts and their M1 prices finished WTI -$0.95/barrel (-1.14%), Brent -$1.51/barrel (-1.74%), Heating Oil -9.28c/gallon (-3.57%), RBOB -4.38c/gallon (-1.71%) and Gasoil -$28.25/tonnes (-3.5%). There are some disappointing data from China this morning, which is discussed below, but whether oil is freer from technical selling, as seen from movements in fund positions, to take up its besottedness with strength in the third quarter might just depend on the words of key members of the US Federal Reserve. With CME's FEDwatch tool now pricing in a cut to interest rates in September at 90%, what is parsed by the FED heads before the blackout of this weekend will be crawled over by all that look for shifts in attitude or at least tone.

China, Disappointing, but too Complex to Call

Last year, in August 2023, and after a series of very worrying readings China stopped making available data concerning youth unemployment. The gauge had reached a record historical level of 21.3% in June 2023, therefore, and hiding behind an excuse of how the sensitive youth unemployment data needed to be recalibrated, the measure was cynically withdrawn and replaced with a new metric six-months later. Taking up such a cynical baton, one wonders whether Friday’s announcement of a change in how GDP, amongst other markers, is announced might be something of a curtain to yet again hide poor data as the Chinese Communist Party (CCP) gathers for its third plenum. These five-year gatherings allow a scrutiny from economists, collators and politicians of the world a look into what might just be in store for the world’s second largest economy. Therefore, walking back on its usual practice of holding a briefing when announcing data, the National Bureau of Statistics instead opts for publishing the data online, offering the suspicion that something is being hidden. GDP, according to Bloomberg estimates, was likely to fall to the lowest rate for three quarters to 5%, but the first half level of 5.2% is likely to keep the average above the Politburo’s 5% target. However, this morning GDP growth rate came in at 4.7%, which is the weakest growth rate for 5 quarters. Even though industrial production improved to 5.3% this is more than negated by retail sales dropping to 2% against a 3.1% expectation. With the house price index also falling, Friday’s announcement showing China’s June exports at their highest for nearly a year and a half, only serves to paper over the cracks of the economy. Changing the way GDP data is released avoids media questions and whether or not government aid is coming.

There are high expectations for stimulus to be announced from the plenum, but a warning from Chatham House is that China is about to cement further government intervention to channel economic resources into the strategic and innovation sectors and to guarantee minimum social welfare to the poor. These are unlikely to be policies eagerly waited and favoured by private enterprises and global investors. With world-wide interest in mind and returning to trade data, the increased level of exports is likely in response to the spate of tariffs and trade restrictions that are about to hit China giving manufacturers little choice other than to front-load exports. June trade surplus is at the highest since at least 1990 and will only serve to alarm and possibly accelerate reaction. Frankly, the import data is rather sobering. Bringing again charges that there is little domestic growth or demand goods taken in for June saw a fall of 2.3% year-on-year and with it a warning for a possible dip in oil demand. In June, there was a slight uptick in arrivals of Crude versus May with 11.3 arriving in the former and 11.03 million barrels per day in the latter. However, this is 11% down from June 2023 and for the first half of the year a drop of 2.3%. Given that oil demand will be directly linked to the incredible ability in exporting goods of the Asian dragon, the above outlining of tariffs etc., does not bode well for future demand forecasts.

Indeed, and it is not surprising, OPEC and the IEA take quite a different stance on what China’s demand will look like in the near future. Even contemporary readings do not align in anyway. The cartel’s brief that China’s oil demand surged by 700kbpd in May, pushed on by strong petrochemicals and transportation is in marked contrast to an unflattering take by the International Energy Agency. The Paris-based watchdog reports that deliveries fell by 200 kbpd month-on-month to 16.6 mbpd in May, as lower refinery runs combined with a reduction in imports. Annually, demand was lower by 180 kpbd equating to -1.1% and the lowest since the middle of 2022. Whereas OPEC has demand increasing 4.2% year-on-year (May) with a brighter macroeconomic environment in the near term and for 2025, increasing by around 0.4 mbpd, year-on-year, to reach an average of 17.5 mbpd. Stark is the only word available for the IEA’s future forecasting. It opines last year the country accounted for 70% of global demand gains, this will decline to around 40% in 2024 and 2025.

Differing predictions from the two main protagonists in oil market data, and what might just be obfuscation on the part of the Chinese powerbase in delivering domestic economic numbers will add to the confusing scenario around how everybody involved in the oil market continues to feel when trying to assess reliable sources to base future campaigns and calls on. China’s fuel demand funds the Russian war machine, its exports price goods around the world and affect inflation and its normal appetites for other commodities involved in the vast property and increasing alternative energies sectors will never allow its progress or lack of to be ignored. China is defensive, the world’s attitude to it is antagonistic, some might argue justifiably. The only thing to be relied on when assessing the state of China’s economy and what that means for the oil market, is that it will only become more complicated and unsettling.
 

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