It is a mess today in markets as month-end flows make it difficult to discern any kind of pattern.
Particularly hard hit is oil, as it breaks $70 and tests the May 15 low. The bulls have been getting excited about a double bottom and the apparent break higher last week was a positive sign. However that turned out to be a fake break and now the downside is in focus again.
OPEC’s JMMC meets on June 4 and there’s some hope that they will ride to the rescue but I think it’s a longshot. Russia already played down the potential for action and that kicked off some selling last week (no doubt raising the ire of others).
The bigger issue might be on the demand side. This was out today from GasBuddy and doesn’t bode well for the summer driving season.
The largest question is China. The latest import numbers have been strong but there’s persistent worry about the underlying economy and problematic debt load. A WSJ feature story today highlights the issues.
China’s era of rapid growth is over. Its recovery from zero-Covid is stalling. And now the country is facing deep, structural problems in its economy. The outlook was better just a few months ago, after Beijing lifted its draconian Covid-19 controls, setting off a flurry of spending as people ate out and splurged on travel. But as the sugar high of the reopening wears off, underlying problems in China’s economy that have been building for years are reasserting themselves.
People have been ringing the same alarm bells for 10 years but there has been some special persistence to it this year and it’s especially compelling at the moment as economic data disappoints.
Moreover for oil, the inability to rally on persistently strong US data is a concern.
All that said, it’s month end and the strength of this move lower in oil is tough to square. WTI crude was last down $2.84 to $69.90.