Saturday, September 09, 2006

Is the drop in oil a sign that China's economic bubble is beginning to pop?

It seems like I remember it said by many analysts and commentators who were/are bullish on oil that U.S. demand doesn't matter so much anymore. I think the argument is that the price of oil is driven by marginal demand in China now-a-days and that this is why oil has to go to $100/barrel or whatever, because they will buy all excess inventory available to fuel their "unstoppable" economic expansion. Now, I am noticing in the articles I read,that the recent decline in the price of oil seems to be attributed by the analysts to U.S. factors...stuff like the U.S. economy is slowing, U.S. consumers are conserving, etc.. China doesn't seem to be mentioned that much anymore. I wonder, though if the original idea is correct, and if so is this an early sign that the Chinese economy is in trouble? (FWIW, I guess I'm currently fading the oil move since I'm long OIH Jan 07 135 Calls.)