User 142738

What China's Stock Market Implosion Means for Oil

I beg to differ, Mile. Let's put the politics and supremacy complexes aside.

The majority of the Shanghai composite's moves lately have been led (up and down) by China's domestic major oil producers. They have to sell their oil to producers at an artificially low price by the Chinese government. When oil prices rise, they lose money; that explains the drama (2% losses or more daily) in the past few weeks. The minute a rumor surfaced about allowing domestic oil prices to rise, the SSE jumped 5%. Imagine what the U.S. stock market would look like if the Dow or S&P 500 were dominated by flaky banks and airlines other than Southwest: it would look horrible as well.

The parallels between the Chinese oil companies and the American airlines are strikingly similar: they are being thrown back and forth by their respective governments' regulations and they are dependent on subsidies.

I've seen this scenario unfold before. Several people are expecting SSE to follow the Nikkei circa 1990. That probably explains the various support levels being as low as 2000 (67% from their high, much like the bubbly Nikkei back in the day).