13 minutes to a meltdown

Posted by Phil Flynn - The PRICE Futures Group

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panic button 0China’s stock drop rocked oil raising concerns of a global market meltdown.

When China went limit down hitting its new circuit breaker in the first 13 minutes of trading, it drove global equity and commodity markets into a tailspin. It drove Hong Kong’s Hang Seng index down 4.2% to the lowest level since Oct. 6, 2011. This took oil below the levels seen in the depths of the great recession and the comparison is making many folks feel that we are in a new great recession (see chart below). Yet what is real and what is imagined is hard to determine when China does not allow its market to do what it needs to do.


The record in U.S. overall energy stockpiles look even more ominous after the weakness in China. Yesterday the Energy Information Administration reported record petroleum stockpiles led by a 10.5-million-barrel surge in U.S. gasoline supply.

Crude oil saw a 5.1 million barrel drop but the lack of diesel demand due to warm weather still pressures the market. Strong refining margins are keeping refineries going and was helped by low crude prices. Stockpiles at Cushing, OK increased by 917,000 barrels last week.

But if history is a guide, oil prices will spike later this year as bankruptcies and low price inspired demand will start to kick in. Bloomberg News reported that the drop in crude to start the year has wiped off more than 100 billion off its Bloomberg World Oil and Gas index, the worst start since 2004.

Last year, oil and gas bankruptcies totaled $13 billion in North America, 42 companies with $17 billion in debt filed in 2015, the highest level since the financial crisis in 2008. Of these filings, 36 companies with $16.7 billion in debt filed in the United States. There are many companies in the space they call the walking dead that will file, especially if prices don’t rebound soon.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world’s leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.