Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

California Consumes More Oil Than China: Fact or Market Manipulation?

Commodities / Crude Oil Dec 04, 2010 - 06:21 AM GMT

By: Dian_L_Chu

Commodities Best Financial Markets Analysis ArticleIn this clip dated Nov. 17, CNBC's Sharon Epperson quoted an analyst's note from HSBC pointing out that California currently consumes more crude oil than China. 

As I do not have a copy of the HSBC report, and therefore cannot verify how the conclusion was reached; however, it is hard for me to fathom California even belongs in the same sentence with China on any economic measures. 


Fortunately, since crude oil is probably the most widely traded commodity in the world, its relatively better transparency could quickly shed some light as to this new finding from HSBC.  .

Fact - CA Oil Consumption is 23% of China’s

A search of the statistics from the U.S. Energy Information Administration (EIA) show the top three oil consuming countries in 2009 were: United States - 18.7 million barrels per day (bpd); China - 8.12 million bpd (that’s around 3 billion barrels per year); and Japan at 4.4 million bpd.

As for California, EIA latest data show 682.6 million barrels a year as of 2008, or around 1.9 million b/d--23% of China’s 8.12 million b/d consumption. However, the consumption rate of California has probably dropped way below the 2008 level since it is one of the hardest recession-hit states in the U.S.

GDP & Population – Not Even Close

Another way to assess the possibility that the claim could be true (assuming HSBC has more resources than the U.S. government) is to look at the macroeconomic measure.

Though oil consumption is a function of many market and economic factors, the size of the economy (GDP) and population are two pretty good indicators.

It is true that California's economy is the largest of any state in the U.S., and ranks eighth in the world. According to U.S. Department of Commerce estimates, California’s GDP (gross domestic product) was nearly $1.85 trillion in 2008 (The number should be considerably lower now.)

China, on the other hand, boasting a GDP of $4.9 trillion in 2009 (that’s three times California, by the way), has recently leaped ahead of Japan becoming the second largest economy in the world trailing only the United States.

Population-wise, with just over 1.3 billion people, China is the world's most populous country, whereas California’s population is around 37 million, less than 3% of China’s.

China Matters A Great Deal in Crude

Now let's take a look at China's oil demand outlook. Contrary to the HSBC's implication, according to a Platts analysis, Chinese crude demand in September rose 5.1% year-on-year to an average of 8.68 million bpd. An IEA report earlier in October also indicated Chinese oil demand surged by 8.5% in August on a 12-month basis.

That suggests the much fretted tightening by Beijing to fight off inflation most likely will contribute to a couple percentage reduction at the most in oil demand growth--5-6% range instead of 7-8%. Not to mention Beijing is also expanding their strategic reserves on almost every commodity, crude oil in particular, which could be counted as "inelastic demand."

Needless to say China's energy and oil consumption is only trending up and a major price driver for oil in the foreseeable future.

California Dreaming

While this could be hard to take for some people, but could California, with one third of the GDP and 3% of the population of China, be one day consuming more oil than China? As the old adage goes “Never say never,” the best answer would be - highly unlikely with extreme low probability.

Fact or Market Manipulation?

Based on the discussion so far, HSBC statement seems to defy many indicators as well as known statistics.  Why would HSBC issue such a report to the investment community?  One could only speculate it’s probably a maneuver to manipulate the market (pending review of the supporting data, if any, to HSBC's conclusion.) 

Due to the massive liquidity unleashed by the continuing global quantitative easing, banks and markets are flushed with cash and playing big in both stocks and commodities. And truth be told, China’s growth is the only exciting news driving up the markets these days.

As such, it is easy for large institutions and funds using “China” to pump their positions —short or long.  Since Epperson covers the NYMEX floor for CNBC, this bearish information on crude oil from HSBC mostly likely was spreading across the trading pit.

And quite coincidentally, a considerable liquidation of the crude long positions took place after CNBC and HSBC revealed the “China vs. California” note, which may have had a positive effect on HSBC’s end-of-year quarter.

Trader's Market

Right now, Fed's QE2 most likely has added at least $10 to crude prices, and funds flow along could probably control $100 crude oil price movement, up and down (Remember the drop from $140 to $40 per barrel in six months during 2008 to 2009?) 

So, moral of the story...since the U.S. is still the largest oil consuming country in the world while Cushing is brimming with about half a year worth of crude, and with so much liquidity around, market fundamentals will likely take a back seat while traders run the show in crude market, at least in the near term. 

And by the way, crude oil just jumped about $8 in the past week--on very little fundamental change--to close above $87 a barrel today on NYMEX, while Brent crude even topped $90 a barrel flipping into backwardation, where near month deliveries cost more than later shipments (Bear in mind, unlike WTI in the U.S., Brent crude and Europe do not issue weekly oil inventory report.)  

Dian L. Chu, M.B.A., C.P.M. and Chartered Economist, is a market analyst and financial writer regularly contributing to Seeking Alpha, Zero Hedge, and other major investment websites. Ms. Chu has been syndicated to Reuters, USA Today, NPR, and BusinessWeek. She blogs at Economic Forecasts & Opinions.

© 2010 Copyright Dian L. Chu - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Ron
04 Dec 10, 17:58
Epperson

Really now. Quoting anything that dimwit Epperson says is given her way too much credit. She merely parrots whatever the last trader who whispered in her ear said.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in