Crude oil futures (West Texas Intermediate) are up 27% from a 12-year low. Bloomberg says hedge funds have increased their bullish bets by the most since 2010. It’s not a bull market yet. But oil prices are at a three-week high.
Charlie Morris sent out his first weekly email update to The Fleet Street Letter readers on the subject of oil. In one of the research reports he’s been working on over the last few months, he’s identified six signals that could trigger an oil price rise to $60. Some of those signals flashed in the last two weeks.
As a result, Charlie pulled the trigger on a “buy” recommendation for his “Whiskey Portfolio”. “Whiskey” is the more aggressive of the two portfolios he’s set up. “Soda” is the other one. Charlie’s populating them when the market presents value or opportunity. Oil presents opportunity.
Some of the price rise is short covering. And some was prompted by the Russian minister of energy, Alexander Novak, telling Bloomberg TV that Russia was open to discussing production cuts, but only if the Organisation of the Petroleum Exporting Countries (Opec) went along. No word from Opec on that yet. But it made for bullish trading in the oil futures market on Friday.
Meanwhile, manufacturing news from China is dismal. China’s January Purchasing Managers’ Index (PMI) contracted for the sixth month in a row. It’s at a three-year low. China’s official GDP growth rate of 6.4% in 2015 was its slowest growth rate in 25 years.
The official rate probably overstates the real rate. None of which would bother you if you believe China’s in the middle of a transition. It’s moving from investment and manufacturing to services and consumption to drive growth. That’s the official line.
But there’s a lot of debt in China. And there’s a lot of excess productive capacity. And the People’s Bank of China is bleeding foreign exchange reserves to prevent a “disorderly” devaluation in the yuan. It’s dicey.
And it’s bad for “you know who”. That’s right, Germany. German exports to China are falling at the fastest rate in 25 years. They fell 4.3% in 2015. That may not seem like a lot. But that’s an even bigger fall than the Asian Crisis of 1997.
What do you expect? German capital goods helped the Chinese manufacturing sector “tool up”. The German export slowdown and the Chinese factory slowdown are two sides of the same coin (made out of Australian and Russian metal). The only question now is whether we are closer to the end of the slowdown… or at the beginning of a much longer period of low growth, high debt and depressing statistics.
Category: Economics