Last month China reported that its January trade surplus dropped to $6.45 billion. This was below consensus economic forecasts calling for a $10.7 billion surplus. Yesterday, China surprised the world again, reporting that in February the country swung to a trade deficit of $7.3 billion. Projections by economists were calling for a $4.95 billion surplus prior to the report.
Also important to note is that both February's export growth at 2.4% and import growth at 19.4% were well below expectations of 26% and 32%, respectively. Collectively, the recent Chinese trade data suggests the country's attempts to reign in their inflation are being met with some success. However, this reduction in Chinese trade will most certainly have an impact on the health of the U.S. economic recovery and global oil demand.
Although recently on diverging paths, a resumption of the S&P 500's tracking to the Port of Long Beach's container usage would suggest a further drop in levels ranging from 1,100 to 1,200 for the index over the next few months. This would imply a retreat by the S&P 500 to levels not seen since November 2010.
Seasonally, it appears that container shipments rise during the spring months relative to the winter. Hopefully, activity with our trade partners will rebound. However, as the U.S. government curtails its recent spate of quantitative easing, the impact of a likely stronger U.S. dollar may serve as another headwind that could stall some otherwise anticipated seasonal progress.
Tying this economic data back to oil under these scenarios suggests that recent decisions to raise forecasts, like that of the EIA to raise its annual average WTI forecast to $102, may prove premature. A softening economy on a global basis would likely curtail some projected demand for oil. Furthermore, reports of OPEC nations stepping up to fill the gap created by disruptions in Libya suggest that oil prices may stabilize sooner rather than later. Maybe we are optimists but in our view the gradual recovery will continue; albeit with oil price movements less volatile going forward than some others are anticipating.
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