What Will Move Oil: Obama's Package or Falling Chinese Demand?

Includes: DBO, OIL, USO, VDE, XLE
by: Henrique Simoes

Rumors about the size of Barack Obama's stimulus package sent oil prices higher this morning. People familiar with this matter say that the stimulus package may reach 1 trillion dollars versus the half trillion considered just two weeks ago. This is very bullish for crude oil prices because its a very inflationary measure and is a possible real stimulus for a very depressed economy (read full article).

Chinese Oil Demand Drops

IEA said that the Chinese economy is slowing, according to diverse indicators on manufacturing, power generation, retail sales and trade. The growth in passenger car sales has virtually stalled since last summer, after rising at double digit rates for several years in a row.

China’s industrial production grew at the weakest pace in nine years as export growth fell. Output rose 5.4 percent in November from a year earlier, comparing to a growth of 8.2 percent in October. (Read full article on Chinese demand). That is a very bearish signal for crude oil. Is this China slowdown totally factored in prices? The stimulus package and the falling Chinese demand for oil are the most important drivers for crude oil futures in the months ahead.

The Word on the Pits is still very bearish. But traders change their mind quickly if the trend reverses itself. The Oil Traders Blog is looking for 50 to 53 dollar a barrel in the next few trading sessions.

Disclosure: no positions