Crude oil prices might have run too far in the third quarter, setting the stage for potential disappointment amid deteriorating economic conditions in China.
We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.Oct 7, 2023Do you know the difference between investing and trading? Because while the goal might seem the same, they're very different thing...Have crude oil prices ran too far in the third quarter, setting the stage for disappointment in the fourth? This analysis will be based on potential Chinese demand, ignoring other factors.
As such, you would expect Chinese oil demand to be a key driver of prices. Below is the historical relationship between overall Chinese imports and the price of crude oil since 1992. The data is quarterly, and I am analyzing changes from a year ago. Generally, it does appear to be the case that as Chinese imports rise, the price of crude oil seems to follow and vice versa .
That would be the red dot on the chart below . Meanwhile, the blue dot represents how crude oil was performing in Q3 as of September 13th. As you can see, WTI’s performance was better than what you would expect given the deterioration in Chinese imports. This means other factors propping up oil were likely afoot.
That said, these external factors may continue supporting crude oil ahead. The point of this analysis is to highlight that a weakening China will likely continue producing downward pressure for WTI, perhaps mitigating the extent it could rally in the next three months.Leveraged trading in foreign currency or off-exchange products on margin carries significant risk and may not be suitable for all investors.
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