'Bubble Talk' Leads To A Sharp Overnight Swoon In Oil Markets

March 2, 2021 11:40 AM
China's bubble concerns caused a sharp swoon in oil and other markets overnight
While some blamed the selloff on China's bubble comments, others pointed to Biden's openness to sanctions on Saudi Arabia
Despite the sharp selloff from the highs, key support held
Energy Report

Energy Report


The Phil Flynn Energy Report 

Bubble Talk

Stocks and commodities had a bubble talk sell-off. China raising concerns about a bubble, not only in their country but also in the EU and the U.S., caused a sharp swoon in oil and other markets overnight. 

At a news conference on Tuesday, Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said that global markets are starting to see side effects of fiscal and monetary policy steps in response to the Covid-19 pandemic. Reuters reported that:

China’s top banking and insurance regulator expressed wariness of the risk of bubbles bursting in foreign markets, and said Beijing is studying effective measures to manage capital inflows to prevent turbulence in the domestic market...

..."Financial markets are trading at high levels in Europe, the U.S., and other developed countries, which runs counter to the real economy," Guo added.

Guo also said relatively big bubbles are the core issue facing China’s property sector. "It is quite dangerous that many people are buying homes not for living in, but for investment or speculation."

If the housing market goes down, the value of properties held by people will suffer from huge losses, leading to a vicious cycle of unpaid mortgages and economic chaos, he said.

The warning shook oil prices that were already shaky due to concerns of slowing demand in China, as well as talk about another new strain of Covid-19. Zerohedge reported about the selloff, saying that, “while the catalyst [for the oil selloff] is unclear, several market participants are pointing to a story in The Financial Times that warns the Brazil-variant of the virus has been found to evade natural immunity.”

Some blamed the selloff on the fact that the Biden administration says they’re open to sanctions on Saudi Arabia. MarketWatch reported that: 

An intelligence report released by the Biden administration on Friday (link) said Saudi Arabia's crown prince likely approved an operation to kill or capture U.S.-based journalist Jamal Khashoggi in the Saudi consulate in Istanbul. The U.S. has sanctioned Saudi Arabia's Intervention Force, called the “Tiger Squad," as well as a former Saudi intelligence officer for the involvement in Khashoggi's murder, but has not sanctioned the prince. 

Phil Flynn, senior market analyst at The Price Futures Group, however, believes that any retaliation by the Saudis would likely come in the form of an attempt to “squeeze the Biden economy,” by holding output back and sending prices higher, as U.S. shale production might not have the ability to immediately respond. 

Sanctions on the Saudi prince would drive up oil prices, not down, as it would restrict U.S. supply, he said. 

Instead, Flynn attributed oil’s losses Monday to concerns that OPEC+ will raise production, as Chinese oil demand is just starting to recover.

A Financial Times headline reads, “U.K. transition to net-zero likely to be expensive.” What do you think? 

Despite the sharp selloff from the highs, key support held. We expect a big drawdown in inventories, which should allow a price recovery! Use the break to hedge and put-on long term bullish positions. 

Don’t miss out on my wildly popular trade levels on all major markets, as well as special subscriber-only updates. Call me at 888-264-5665 or email me at pflynn@pricegroup.com.

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil 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.