Is China headed for a ‘Minsky moment? One Chinese economist has warned that they could and he issued a warning, along with some comments from a Russian oil company. Seems a bit slow today, what had been an impressive oil price rise, ahead of November’s Future expiration.
Reuters wrote an article quoting a ”veteran but outgoing governor of China’s central bank “ that was warning of the dreaded “Minsky moment”, a reference to excessive optimism about economic growth fueled by vast debt and speculative investment that was coined after 1998 Russian financial crisis the last time that oil was near a major bottom.
In other word’s he is warning of irrational exuberance, to steal a phrase from former Fed Chair Alan Greenspan as economic optimism recently has been strong. A sharp drop in the Chinese economy would be a concern for oil as the crash in oil to the recent $26 a barrel area in 2016 was caused by Chinese economic jitters that seemed to go away. If they reemerge those worries, the oil price could sink, but recent Chinese economic data seem to dispute those fears. A report that a comment from an unnamed Russia oil official brought down prices but it looks like OPEC and Non-OPEC will extend production cuts, mainly because Russia and Saudi Arabia want them.
Reuters reported that Russian President Vladimir Putin said on Thursday that coordinated efforts taken by Saudi Arabia, Russia and other leading oil producers have borne fruit and led to oil prices rising to above $50 per barrel, which is a “fair” level.
“We have coordinated our position with the OPEC countries… and the price has been stable at over $50. We consider this to be a fair price, which suits us,” Putin said at a forum with scholars.
Despite weakness going into the November expiration, the fundamentals for oil are very strong. Not only did we have a big drop in U.S. oil production last week we had a major drawdown in supply. Global demand is the strongest it has been in years and despite fears that shale oil producers will come back online soon, the reality is that shale oil output is peaking.
Plus you have geo-political risk going into the weekend. Reuters reported that “oil supplies that flow from Kurdistan, in northern Iraq, through Turkey fell to around 196,000 barrels a day on Thursday, compared with a usual supply of around 600,000 barrels a day”, according to Dutch bank ING Group. “A prolonged disruption to this supply could tighten the oil market in Europe,” analysts at ING said.
