Is it too early to start thinking about QE4? Weak data out of China and France may suggest that the oil sell off on that so called “fat finger” trade may be justified in the light of the Saudi Arabian pledge to pump more oil, a shocking build in US inventories and now a global economic slowdown. Oil is all of a sudden getting hit on all of the bearish fronts and all of a sudden more bearish demand fundamentals seem to be developing every few minutes.

Last night worries about China’s growth led to the downward pressure.  The preliminary HSBC China factory index came in below expectations marking the 11 month of contraction and the longest losing streak in the eight years that HSBC has been tracking their numbers.

These are the types of numbers that would normally move the Chinese government to act on stimulus but with a change in China’s leadership just around the corner the old guard may be reluctant to act. Add to that tension with Japan over the disputed islands, which Tokyo calls the Senkaku and Beijing calls the Diaoyu raises even more concerns of more demand destruction.

Japan posted a 754.1 billion yen (9.6 trade deficit for August).France’s manufacturing data also came up short hitting a 41 month low and the entire Euro-zone PMI number hit the lowest level since 2009 so where is oil demand going to come from? 

Concerns have eased just a bit after a better than expected Spanish bond auction  and the German PMI coming in better than expected but that may not add a bunch of support for oil that is still reeling from a huge build in US oil inventories and a Saudi Kingdom that is focused on breaking oil prices.

The Energy Information Administration reported that crude supply of 8.5 million barrels compared to expectations around 2.5 million barrels. Crude oil imports surged averaging 9.8 million barrels per day last week, up by 1.3 million barrels per day from last week.

Still Oil has fallen almost $10 a barrel in 5 days so despite the big drop we should be near a bottom short term!

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Phil Flynn

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