Call it a Silver package or maybe a copper package. Silver and copper are surging, and Oil is being supported as China is taking steps to try to shock and awe its beleaguered economy out of a tailspin. Talk of a big rescue package is making the rounds and steps today by the Chinese government suggest that that could be coming sooner rather than later.
The Wall Street Journal reports that, “China’s central bank announced new steps to boost bank lending to households and businesses, an early move in what is expected to be a broad but restrained campaign by authorities to prop up growth this year after a lackluster 2023. It comes on the heels of signs of gathering government support for China’s swooning stock market, with investors detecting a rash of share buying by pension funds, insurers and other state-linked firms.”
Even Jack Ma is buying back shares of his own company. I wonder what gave him that idea?
The Wall Street Journal wrote that:
“Wednesday’s reserve reduction marked the third such move in less than a year, following cuts of one-quarter of a percentage point first in March and again in September last year. The latest cut will take the average reserve requirement across all banks to around 7%, from 7.4% previously. Effective Thursday, the central bank also intends to cut some key rates linked to loans for small firms and rural enterprises.”
The market is expecting a broader rescue package that should move to support industrial metals grains and oil assuming that the package is deemed strong enough by the markets. Bloomberg reported yesterday that, “Premier Li Qiang was calling for “forceful” steps to shore up the words worst worst-performing stock market.
Bloomberg wrote, “Policymakers are seeking to mobilize about 2 trillion yuan ($278 billion), mainly from the offshore accounts of Chinese state-owned enterprises, as part of a stabilization fund to buy shares onshore through the Hong Kong exchange link, said the people, asking not to be identified discussing a private matter. They have also earmarked at least 300 billion yuan of local funds to invest in onshore “shares through China Securities Finance Corp. or Central Huijin Investment Ltd., the people said.”
China is still a driving force for oil demand even as India will start to overtake them from a demand growth perspective.
John Kemp at Reuters reported that, “India’s petroleum consumption climbed to a new record last year and the country is on course to overtake China as the primary driver of incremental oil consumption before 2030. Kemp says, “While China’s oil consumption is expected to peak before the end of the decade and start to fall, India’s will continue increasing throughout the 2030s. India is already the second-most important driver of incremental consumption in the world and is on course to take the top spot before 2030. Bloomberg is reporting that the cost of shipping fuel to Asia is up 182% since the Yemen airstrikes. Can you say inflation?
Oil rose after reports that the US is expanding its war.
Reuters reported, “The United States carried out strikes in Iraq against three facilities linked to Iran-backed militia on Tuesday, the Pentagon said, after a weekend attack on an Iraqi air base that wounded U.S. forces. U.S. troops in Iraq and Syria have been attacked about 150 times by Iran-aligned militants since the Israel-Gaza war started in October, creating pressure on Joe Biden to respond militarily, despite political sensitivities in Baghdad according to Reuters.
Oil inventories are still going to be a driving force in the oil price renaissance. Yesterday the American Petroleum Institute (API) weather-beaten inventory report showed a massive 6.674 million barrel crude oil draw. The excitement about the big plunge was tempered by an incredible 7.183 million barrel increase in gasoline supplies, part of that build was blending component and the other part was because people couldn’t get out of their house because of the snow and the cold. Distilling inventories also fell slightly by 245,000 barrels.
If you look at the global demand numbers it’s still incredibly strong and now with the possibility of a massive shot of Chinese stimulus and increased demand expectations in Europe and Asia, we’re probably setting the stage for a pretty good rally. The technicals are starting to look more positive and while we could use a close above 75 to get this market moving, the downside is looking more limited by the day.
Natural gas will see perhaps one of the largest supply drawdowns in history this week. Natural gas prices are now getting a little bit of a boost after the plunge that we saw on Sunday night because weather forecasts are starting to turn colder once again. EBW analytics is still bearish overall.
They write that , ”While Winter Storm Gerri may lead to the third-largest EIA withdrawal in history, the 1-15 day outlook appears likely to smash all-time warm records as extreme weather volatility shed 81 gHDDs and 139 Bcf in under two weeks—numerous catalysts for volatility cloud the immediate-term outlook. Barring a return to severe cold, however, bearish fundamental pressure appears favored as the March contract assumes the NYMEX front-month position next week.
While another half of winter remains, as the market shifts its focus to the 2024 injection season, growing oversupply fears are likely to predominate—and may send natural gas sub-$2.00/MMBtu in an attempt to shake out production. The reality is that many natural gas producers are already under financial duress and while BW is right that they may try to squeeze some more out, if we don’t see a big sustained cold blast most of them are going to a fall by the wayside regardless.