The past few years we have seen plenty of bulls and bears commenting on the oil market. Bears think the era of oil is over as cheap shale oil and the push towards electric vehicles will crush the oil market, but this is being countered by the bulls. They are right when they say it will take a while for EV’s to penetrate the vehicle market even more, and meanwhile, the demand for ‘normal’ combustion engines will remain.
One could also argue gas will take over the role oil has been playing as coal-fired and oil-fired power plants could be replaced by gas-fired plants whilst more cars are being converted to run on gas. The booming gas market was also the main reason why Royal Dutch Shell acquired British Gas.
But even the biggest oil bear cannot deny oil remains one of the most important commodities in the world as it’s not just used as fuel but also as basis to make plastics and chemicals. And just like so many other commodities, the world is looking at China as driving force behind oil price fluctuations.
Bulls will have been happy this week as China’s import data crushed all expectations. Whereas the country imported an average of 8.44 million barrels of oil per day in the first nine months of the year (which is the equivalent of 4 VLCC tankers on a daily basis), but imported 9 million barrels per day in September alone. Some could argue this is just a stockpile to prepare themselves for the winter, but that’s where the importance of the gas import levels is entering the scene.
Source: Financial Times
China has seen its gas import levels soar by a stunning 22% compared to last year, which caused the prices for Liquified Natural Gas to spike. Good for LNG companies, but it also undermines the argument the additional oil imports will be used for heating as the import numbers clearly show gas will become the more dominant commodity for that task. If anything, the increased gas import level actually proves the imported oil will be used for industrial activities rather than heating purposes.
And this puts the entire world situation in a different light. Most market participants had been expecting to see China’s growth rate going down and whilst that’s still possible, it has become very difficult to deny China will remain a major powerhouse in the world, which includes a continuous demand for oil, gas, base metals, and gold.
Even though gold is rarely used as an industrial metal, the GDP growth will result in more disposable income for the average household, and gold remains an attractive investment opportunity for most of those consumers.
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