Market Report: Forget About Supply, Focus Is All on Demand

Forget about supply for the moment; the focus is all on demand. Just like the lack of demand for the shunned greenback and the prospect for better oil demand in the future.

Oil prices continue their assault on higher prices because of better than expected China exports and a weakening dollar. Front month crude posted a new high for the year yet due to contango, the November contract is still short of its own personal contract high which was 7589 set June 29 of this year. Oil bulls have a free hand as delayed inventory reports allows them to not have to think about the current supply glut at least for a couple of hours in favor of the promise of improving demand. It is easier to be boldly bullish when oil inventory is delayed by a day, so why not focus on demand hopes. Most of those hopes are coming out of Asia.

Yesterday those demand hopes centered on Asian auto sales and today it is about exports. China exports fell by 15.2%. The street was calling for a larger drop, in the area of 21 percent. At the same time China imports fell by less than expected giving analysts hope once again that China's economy might be improving faster than anticipated. This drove the Shanghai stock market higher as well as the Yuan forwards to a 13 month high and the dollar to another 18 month low. This type of activity seems to suggest that China's economic growth is heating up even more.

Oil bulls also got excited yesterday by the fact that auto sales in China hit 1.2 million units in September. For the year expectations are that they will sell a whopping 12.6 million cars! That is a lot of gas consumption. But what was even more interesting was that sales in Japan beat expectations, selling 3.5% more cars in the month of September. Japanese car sales totaled 321,737 vehicles according to the Japan Automobile Dealers Association. U.S. auto sales looked dismal by comparison as the "cash for clunkers" hangover hurt US sales. That discrepancy added further pressure to the dollar and gave the yen and yuan more support. The strong car sales not only boosted oil but gave platinum a ride as well. Platinum, a metal used in catalytic converters, found strong support on that data. Overnight, as expected, Japan kept their interest rates unchanged.