Global markets are blowing up after North Korea allegedly tested a hydrogen bomb and China devalued its currency to the lowest level since 2011. Oil prices, which were already under pressure due to a reported 5.6-million-barrel increase in crude supply and weaker demand numbers from China for oil, have another reason to be pessimistic. A big spike in the treasury futures curve shows the Black Swans keep coming back and hammering oil.
Did they or didn’t they. North Korea is claiming that the big boom that shook the world's markets was an H-bomb of justice. An H-bomb obviously would be a big step forward for the North Korean nuclear program and a big risk to the world. The global markets are showing their concern. Also, the oil market will want to know if Iran was present during this explosion, which could blow up the oil.
There are concerns about China’s economy and it continues to drive market concerns. The People's Bank of China devalued the yuan, lowering its fixed rate to 6.5314 versus Tuesday's 6.5169. That was the lowest level since April, 2011. This comes as the Caixin China services purchasing managers index fell to 50.2 from 51.2 in November, the weakest reading in 17 months.
We also saw weak China oil demand numbers as well. China’s oil demand increased by 1.5% in November from a year ago at this time, to 10.95 million barrels per day (b/d), according to the Plats China Oil Analytics report on the latest Chinese government data. While demand was higher, it was the slowest growth since February, 2015 due to warm temperatures. China's refinery activity was strong and rose in November averaging 10.73 million barrels per day, up 4% from a year earlier. Plates reported that during the first 11 months of 2015, China's total apparent oil demand averaged 11.10 million b/d, an increase of 7% from the same period of 2014.
The bearish stories keep coming in! Still, look for this latest drop in prices to cause more bankruptcies and the ramifications from price spikes to keep having a big impact on output in the coming months.