Bulls out for summer! Bulls out for summer! No More QE, No more QE .The summer solstice brings in more uncertainty in the market place. As the Fed starts the great exodus from QE the market has to get ready for the great unwind. Volatility is back and the bulls are no longer going to get a free ride bought and paid for by our friends at the Federal Reserve. Add to that the fears of a China meltdown based on a credit freeze as the government tries to squeeze the shadow banking system but may bring down the entire banking system along with it. The problem with China is so much of their economy is in the shadows as it is and with the reversal of the hot money provided by our Fed they may see some credit freeze even more as it will be impossible to determine the credit worthiness of your trading partner. While during the height some were praising the Chinese quay controlled way of capitalism it seems that cronyism and shadow markets and currency can only get you so far.
Of course the uncertainty surrounding China and the fading Fed handout, the prospects for oil demand growth are fleeting at best. Not even word that OPEC was cutting production seemed to stop the carnage. Bloomberg Reports that "The Organization of Petroleum Exporting Countries will reduce crude shipments through early July as adequate inventory levels curb a typical seasonal increase in shipments, tanker tracker Oil Movements said. The group that supplies about 40% of the world's oil will ship 23.84 million barrels a day in the four weeks to July 6, down 20,000 a day from 23.86 million in the previous period to June 8, the researcher said in an e-mailed report. The figures exclude two of OPEC's 12 members, Angola and Ecuador. OPEC's exports, which normally climb at this time with higher gasoline demand during the northern hemisphere summer, should recover later in July, the consultant said."
Reuters News reports that "Russia's Rosneft agreed to double oil supplies China, in a deal valued at $270 billion on Friday, as the Kremlin energy champion shifts its focus to Asia from saturated and crisis-hit European markets. Rosneft will supply China with 300,000 barrels per day over 25 years starting in the second half of the decade, on top of the 300,000 bpd it already ships to the world's largest energy consumer. "The estimated value of the deal is $270 billion," Rosneft boss Igor Sechin, a powerful ally of President Vladimir Putin, told reporters in what would be one of the biggest supply deals in the history of Russia, the world's top oil producer. The speed of change in Russian export patterns has been dramatic — switching huge volumes from Europe in only five years. Russia first started supplying China by railway and then by a new pipeline while opening a Pacific port, Kozmino, in 2009. Together with supplies to Kozmino, it is already exporting around 750,000 barrels per day to Asia, or 17% of its overall exports of 4.4 million."
That is a good deal for Russia and much needed as The New York Times writes " For more than a dozen years, it has been impossible to miss Russia's soaring, often ostentatious, energy wealth — the flashiness of Moscow, the 250-foot yachts and the hundred-million-dollar penthouse apartments for the children. And the riches have hardly been confined to the private sector. Last year, when Vladimir V. Putin wanted to shore up support ahead of Election Day, the salaries of government workers jumped; military pay actually doubled. Those heady days seem to be running out, however. The great gush of oil and gas wealth that has fueled Mr. Putin's power and popularity and has raised living standards across Russia is leveling off. Foreign investors, wary of endemic corruption and an expanding government role in the economy, are hanging back, depriving the economy of essential capital.”