China has issued new oil product export quotas to allow oil companies to send surplus barrels overseas, particularly Sinopec, which has the highest volume among quota holders. While the exact quota volume remains undisclosed, oil companies are forecasted to export approximately 3.5 million metric tons of clean oil products in September, a 10% increase from August.
USD: the outlook from Hong-Kong
2020-05-28 • Updated
Breaking it down
Geographically, managing Hong-Kong is a sovereign matter of China.
Historically, it became a global issue since the British Empire took over this important city in the XIX century. During the entire XX century, it has been in possession by the British under lease agreement serving their economic and geopolitical interests. In 1997, it was returned to China.
Economically, after the global balance of economic power shifted from the dissolved British Empire to the US, the American interests are now what stands in the way of China taking full control over the city. Hong-Kong’s own interests and independence from China would be an easily resolved problem if it was only between Hong-Kong and China. But it isn’t; that’s why it is so complicated.
Geostrategically, Hong-Kong is an ideal penetration point through which the US can exert their influence and leverage power over China. Playing the Hong-Kong’s “independence and democracy” card, ideologically aligned with the Western rhetoric, against the Chinese “domination and communism” card, the US has a politically outsourced stronghold in Hong-Kong. Its primary target is to attract and consume China’s attention and resources as much as it’s needed to keep China’s international aspirations in check.
The US presidential election is coming. Of course, there are underlying economical and political disputes between the US and China that clash in Hong-Kong, and these will not stop emerging from time to time. But this year’s global political agenda suggests making a “small war” over Hong-Kong and eventually winning it may earn voters admiration to the US President. Namely, Donald Trump. Voices of the reasonably thinking and the moderately patriotic citizens in the US will be shouted down by the admiration of the millions who see their President as strong as ever reinstating “democracy and freedom” in Hong-Kong right in front of China – at the peak of anti-China moods in the US. As always, to make victory one needs an enemy, a war, and an excuse to make it. China, Hong-Kong, and “democracy at risk” are the three respective elements that perfectly fit this narrative.
Hong-Kong to China and the US is the same as what Moon is to Earth and Mars. As unique and international as it is, Hong-Kong will inevitably drift to the gravity of China, while the US is just too far away to keep hold of it. Nonetheless, there will be fights over it for the reasons explained above. These fights, however, have limitations from the US side more than China. Primarily, there are a lot of American corporations with their regional headquarters, production centers, and outsource bases in Hong-Kong. While Donald Trump may imply that he is it trying to protect their interests over there, practically, any turbulence over Hong-Kong shakes the stability of these corporations operation in this region. That questions the long-term prosperity of these companies and most of all, supply chains. Market sectors dependent on trade would be exposed to the highest risks.
Second, any deterioration of the US-China relations drags investors’ attention to the US dollar. Consequently, the Chinese yuan loses value. It has lost already quite much – in fact, the USD/CNH currently trades at historical highs of 7.20. In theory, that’s unacceptable to the US exporters who cannot compete with cheap yuan. So far, Chinese financial authorities are forcefully suppressing the USD/CNH. But nothing will be able to stop it increase in the case of further deterioration potential to a second cold war, as warned by the Chinese officials. Therefore, aggressive positioning against China may strike at the US in the long-term keeping the USD as high as ever in the times of prolonged risk aversion.
Thanks to the incredible advancements in horizontal drilling and fracking technology, the United States has experienced a mind-blowing shale revolution. They've become the heavyweight champion of crude oil production, leaving Saudi Arabia and Russia in the dust. They even turned the tables and became net exporters of refined petroleum products in 2011.
Oil prices rebounded slightly on Friday but are still expected to show losses for the week due to concerns about slowing growth in the US and China. US crude futures rose 2.7% to $70.41 per barrel, while the Brent contract increased by 2.5% to $74.33 per barrel.
The past several weeks have been a real triumph for the bulls in the oil market. The Brent spot price grew by 8.5% during the last month.
Gold prices are rising for three consecutive days ahead of the Federal Reserve (Fed) interest rate decision, which is expected to remain unchanged due to declining inflation and a positive economic outlook. Investors are keen on the Fed's interest rate guidance, fearing a hawkish stance that could trigger market risk aversion.
Amid concerns of a Chinese economic slowdown, reports of declining investment often overlook China's efficient investment strategy in emerging sectors for long-term growth. China has taken measures to stabilize foreign and private sector investments, like reducing the reserve requirement ratio to boost investor confidence.