Today's Trends: Containing Expectations

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.

After climbing 6% year-to-date through the month of February's ending, the S&P 500 has pulled back 2% during March. Data from the Port of Long Beach regarding 20-foot-equivalent containers may be quite telling in the months ahead. As can be seen in the chart comparing the S&P 500 and container data, historical market movements typically track the port's activity. Considering China's dominant position in the global economy, a continued decline in container usage appears in the offing for February and possibly March, given this country's impact on global trade.

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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Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Timothy Johnson | Mar. 11, 2011
The broader graph against container traffic, vs LB is rather narrow. The views fail to account for traffic diversions within the LA / LB terminal areas. A broad macro view of oil prices should be tempered "ceterus paribus." However the world as we know it does not work in this way. Prices will dictate supply, and demand will dictate prices. It may be interesting to view historic choices of fuel in Japan for past power outages after earthquakes. The Keynesian outlook for fuel based on current supply, and demand shows that we are rapidly approaching a near vertical price movement in oil.(Not that he is always right) This weeks comments from Rex Tillerson should cement these views While there exist plenty of headwinds that will temper price moves, concerns remain about supply. There have been few instances of governments enacting curbs for subsidies, and with the current unrest, it would seem unlikely that many are willing to step out on the limb. So who wants to pony up excessive supply without the price? There are shareholders, and governments who want to know!


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