According to Standard & Poor's, the reopening of China's economy will create fresh demand for oil. S&P estimates that China's awakening will generate the equivalent to 3.3 million barrels of crude oil per day.
That's a significant bump in demand. For a reference point, the International Energy Agency estimates that the world consumed 96.2 million barrels per day in 2021.
China continues to loosen pandemic-related restrictions. Earlier this week, several government-mandated tracking apps were deactivated, just as citizens prepare to travel for the holidays. China's New Year celebration is scheduled to begin on January 22, and will last for about two weeks.
While a loosening of travel restrictions is good news for China's economy, commodity prices aren't reflecting that sentiment. In fact, the NYMEX January crude oil chart (CLF23) looks downright bearish.
Chart Source: TradeStation
January crude has formed an A-B-C-D pattern. This bearish formation suggests a price of $65 per barrel.
This weakness in oil seems to contradict seasonal factors. The following chart demonstrates seasonal price behavior for crude oil over the past 20 years (2001-2021).
Image via equityclock.com
As seen on the chart, oil prices tend to peak in October and decline through mid-December, when they begin to rise. Despite this seasonal advantage, the current oil chart shows no sign of resurgence.
The lack of a positive impact on oil due to China's imminent reopening, and the way oil appears to be ignoring seasonal patterns, reinforces our position that taking profits on energy-related stocks is the correct move.
The benchmark Energy Select SPDR Fund (XLE) is up more than 52% year to date, despite its recent pullback. Energy has been by far the top-performing sector of 2022.
XLE hit a fresh six-week low on Friday, as it pulled back after forming a rounded top pattern (curved black line). The bellwether ETF has closed beneath its 50-day moving average (blue) for five consecutive sessions. The next major support for XLE is the ETF's 200-day moving average (red), currently hovering just below the $80 mark.
Chart Source: TradeStation
China consumes more copper than any other country in the world. If we're about to see an economic resurgence due to China's reopening, we'd likely see that reflected in Dr. Copper's chart.
Despite this, the COMEX January 2023 copper contract was rejected at its 200-day moving average just last week (arrow). Copper has traded below that key indicator for the past six months.
Chart Source: TradeStation
Despite the excitement generated by Tuesday's CPI report, inflation is still high. CPI inflation is now measured at an annual rate of 7.1%.
Add all of these factors together, and it's difficult to see light at the end of the tunnel for the global economy.
