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Strategies & Market Trends : Value Investing

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To: Micah Lance who wrote (57537)	7/15/2016 10:04:10 PM
From: Graham Osborn	Read Replies (1) of 78921

I'm not arguing these points. What I'm pointing out is that even when the credit crisis plays out in China (and it's hard to say how long that will take given that that ECB is doing for the rest of the world what PBC is doing for China), the Chinese will continue driving cars or ride buses if they can't afford a car, or whatever. Fuel consumption doesn't decrease a huge amount even in these extraordinary situations because it is a staple. Moreover, I think you're attributing too much importance to Chinese demand in the crude supply-demand equation. The reason fuel prices are so low is primarily a problem of oversupply, not underdemand. This is typical for the commodity cycle. Similarly, high oil prices are primarily a product of undersupply. Even in a hypothetical world where oil demand stayed constant, oil boom-bust cycles would continue because oil prices and oil capacity have a reflexive relationship. The supply function is by far the most unstable, again because it is a staple. A credit crisis in China could easily slow consumption of other raw materials, no question. So choose your commodities carefully.

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