China’s Rising Demand Boosts Crude Oil Prices

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In his podcast addressing the markets today, Louis Navellier offered the following commentary.

If you wish to listen to this commentary, please click here.

A Lot More Doves Than Hawks

The Fed should signal in its FOMC statement on Wednesday that it is effectively done raising key interest rates as inflation cools and Treasury bond yields settle down. There’s a great article in Bloomberg today scoring all the voting members of the Fed from hawks to centrist to doves.

According to Bloomberg, there are a lot more doves and centrists than hawks. So there is a growing chance that we will not have a rate hike tomorrow. And even if we do have a rate hike tomorrow, it should be the last, and we’re all expecting a very upbeat and positive FOMC statement.

China’s Oil Demand

Brent crude oil crossed above its 200-day moving average this week. China’s rising demand this year, plus its recent pledge to stimulate its economy remains the primary force behind crude oil’s recent rise.

Additionally, big fires on Pemex offshore oil platform and refinery are raising concern that Mexico’s crude oil production is sputtering due to neglect. There is plenty of crude oil to be extracted in Mexico if they contact U.S. oil service companies. Exxon Mobil also curtailed production at one of its refineries, so the inventory of refined products remains tight.

Energy Stocks Benefit From Rising Fossil Fuel Demand

Energy stocks are benefitting from rising global demand for fossil fuels from emerging markets, as well as strong seasonal demand in the U.S. Furthermore, the chaos in Russia makes them an unreliable source of crude oil, despite the fact that Russia is currently producing more crude oil now than Saudi Arabia after its 2 million per barrel per day cut.  Western sanctions and harsh winter weather is anticipated to continue to curtail Russia’s crude oil production long-term.

Energy stocks have also been aided by the tension in the Middle East as Iran continues to hijack ships. As a result, the U.S. Navy dispatched two amphibious warships and thousands of Marines to the Middle East to counter Iranian threats. China imported 11.4 million barrels per day of crude oil in the first six months this year, which is 11.7% higher than a year ago.

Interestingly, 2.13 million barrels per day of crude oil came from Russia and China has boosted its stockpile of crude oil to take advantage of cheaper Russian crude oil. So overall, due to China stockpiling crude oil and the tension in key crude oil shipping lanes, like the Straight of Hormuz and the Gulf of Oman, crude oil prices may continue to meander steadily higher.

Energy prices are expected to remain firm, simply because there are too many global uncertainties. In the U.S., we are fortunate to be food and energy independent.  However, many workers are upset that their wages are not keeping pace with inflation like UPS workers.  Furthermore, the UAW is worried about losing their jobs due to the transition to EVs as GM and Ford move of their EV production to Mexico, so they are not endorsing President Biden’s re-election yet.

Playing Hardball

Speaking of EVs, GM announced that its second-quarter results were hindered by a $792 million extraordinary charge related to the recall of its Bolt EV to replace its LG battery packs.  Excluding this extraordinary charge, GM posted strong sales and operating earnings.

The average vehicle that GM sells now trades at around $52,000, up 3% for the first quarter, so GM is moving increasingly upscale with its vehicles. Due to GM’s strong operating earnings, I suspect the UAW will play hardball and go on strike if its demands are not met.

We are now in the midst of the second quarter earnings announcement season.  Already many of our stocks are exhibiting relative strength, which is a sign that money is gravitating to those companies that will post the strongest quarterly results and guidance.  We are in the midst of a “rolling recovery” as our favorite economist, Ed Yardeni, likes to say.

There are essentially four improving industry sectors where we can find stocks, namely (1) semiconductors/cloud computing, (2) oil refining/integrated energy, (3) consumer discretionary, and (4) homebuilding.

The damage to the seven largest capitalization stocks in the NASDAQ 100 (QQQ) appeared to happen last Friday since most of these stocks opened stronger this week.  The other 93 stocks in the QQQ index were the beneficiaries of the reduction in weight of the seven largest capitalization stocks.  The bottom line is the breadth and power of the overall stock market continue to improve as investor confidence and economic growth persists.

Coffee Beans: Going Electric

Over the last ten years, China has become the global battery electric vehicle (BEV) forerunner, increasing its annual sales of fully-electric cars from roughly 10,000 in 2012 to 4.4 million in 2022. The United States has also been at the forefront of electrifying its passenger car fleet with 800,000 BEV sales in 2022. Source: Statista. See the full story here.