Oil Prices Rebound on China Reopening Optimism
RedStone Resource
January 18, 2023
Inside This Edition
US Dollar Continues to Soften
There continues to be much global volatility as different regions of the world deal with different disruptive issues. From the War in Ukraine impacting markets throughout Europe to Covid impacts in China and Fed actions in the US to stem inflation, there is a lot of uncertainty.
Cass Freight Shipments Index Mixed in December
When looking at the Cass Freight Shipments index for December, the index came in at 1.161, down 3.3% sequentially month-over-month and 3.9% lower year-over-year. It is also down 9% from its post-pandemic peak and it shows the deceleration in freight activity that has been obvious in the latest wave of data.
Job Openings Still Remain High, Especially in Transportation and Warehousing
Many economic analysts and Federal Reserve Presidents are still looking at inflation for signs of potential recession. And moreover, they continue to point to the pressures emerging in the jobs market as a leading source of inflationary pressure.
ECONOMIC BRIEFING
Oil Prices Rebound on China Reopening Optimism
Despite China going through a tremendous amount of disruptions as the country goes through its first major wave of the Covid virus, speculators are beginning to factor-in the impact of a Chinese economy that could reopen aggressively in 2023. China’s economy grew at just 3% in 2022 because of the zero-Covid policy and consistent lockdowns; it was the lowest rate of growth since the 1970’s.
But as the rest of the world experienced during the reopening process after waves of Covid, the Chinese economy is likely to undergo similar experiences. With Chinese demand for many commodities being lower over the past year, the prospects of a reopening surge in demand have lifted many commodity prices. West Texas Intermediate was trading at $81 a barrel in late trading on Tuesday and Brent North Sea crude had increased once again to nearly $87 a barrel. Low inventories of many products including oil, metals (aluminum, copper, nickel, lead, zinc) and food commodities may begin to show more of this demand pressure, especially if the United States continues to see GDP growth exceed expectations. It could also keep certain inflationary pressures higher than expected.
US Dollar Continues to Soften
There continues to be much global volatility as different regions of the world deal with different disruptive issues. From the War in Ukraine impacting markets throughout Europe to Covid impacts in China and Fed actions in the US to stem inflation, there is a lot of uncertainty. The US dollar is also in a period of volatility, but general trends show it softening through the past 3 months. The dollar is down nearly 9% over the past 90 days and is down roughly 1.5% over the past 30 days. Many sourcing managers are counting on a stable dollar to make longer-term buying decisions for products. A variety of factors (far too many to list here) are driving some foreign currencies higher, which results in pushing the dollar lower. This inflates imports and makes US exports cheaper. This is also partly what is pushing oil prices higher and any other dollar-denominated commodities.
Again, the dollar is in a period of volatility and in many cases, it is not the US dollar getting weaker, it is foreign currencies building strength. But this has an impact on global supply chain decision-making and could have an impact on new order demand.
TRANSPORTATION BRIEFING
Cass Freight Shipments Index Mixed in December
In what seems to be a constant in economic discussions these days, depending on whether one considers pre-pandemic or post-pandemic business dynamics, very different stories can emerge. When looking at the Cass Freight Shipments index for December, the index came in at 1.161, down 3.3% sequentially month-over-month and 3.9% lower year-over-year. It is also down 9% from its post-pandemic peak and it shows the deceleration in freight activity that has been obvious in the latest wave of data.
However, compared to the decade prior to the pandemic, current freight shipment activity levels (as of December) are 5.6% higher than the average struck between 2010 and 2018. Said in simpler terms, aside from the three-decade peaks hit in 2018, 2021, and 2022, current shipment activity remains at the upper end of the longer-term range.
Job Openings Still Remain High, Especially in Transportation and Warehousing
Many economic analysts and Federal Reserve Presidents are still looking at inflation for signs of potential recession. And moreover, they continue to point to the pressures emerging in the jobs market as a leading source of inflationary pressure. Today, the employment cost index remains at all-time highs for the corporate community. This is an indicator that wages remain higher and companies must pass those costs on to their customers. With wages typically being sticky inflation (they tend to remain high for a longer period), it is difficult to start reversing this situation, even with one of the fastest interest rate hikes in history. Job openings continue to remain near historic levels.
Job openings across the board remain high with more than 10.5 million jobs open. In the transportation and warehousing sector, there continues to be 478,000 jobs open. Although this is off the 2021 peak rate of 609,000, it is still 81% higher than it was just prior to the pandemic. Transportation firms are still under pressure, and that wage pressure is resulting in higher rates than expected.
