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China Will Not Be Named A Currency Manipulator In Treasury Report

One of the residual risk factors that has been hanging over the market and depressing risk in recent days, was speculation that when the US Treasury releases its next semi-annual currency report on foreign exchange rate practices on October 15, China would be officially tagged as a currency manipulator after BP Mike Pence’s belligerent speech last weekend, prompting an even more aggressive currency war phase between the two nations.

To be sure, the market was skeptical of this outcome and as Barclays FX strategists Hamish Pepper told Bloomberg TV overnight, the grounds for China to be called an FX manipulator are “relatively weak”, adding that “there should be an acknowledgment that the intervention we have seen hasn’t necessarily been to go against the market in a big way.” Pepper also claimed that “the behavior we’ve seen from the PBOC in regards to the yuan has been to allow market forces to prevail” adding that a 6.95/USD level for the Yuan is one which both the US and China would be comfortable with.

And now, Politico confirms as much, reporting that when the Treasury Department unveils its report Monday, it won’t name China a currency manipulator.

“The report submitted internally to Treasury Secretary Steven Mnuchin did not recommend that Beijing be labeled a currency manipulator and continued to place China on a monitoring list, an administration official familiar with the report told POLITICO” the report says.

While Politico concedes that it is possible that Mnuchin could revise the final report to include China, such a reversal would be extremely unlikely and there is no precedent for such action.

The April 2018 report found China met two criteria for being listed — having a significant bilateral trade surplus and an account surplus in excess of 3 percent GDP — but not the third and final requirement of having a “persistent, one-sided” intervention in its currency market. The U.S. has not labeled a country a currency manipulator in the report since China was given the designation from 1992 to 1994.

While the offshore yuan was already rising on the news, it hit session highs shortly after the Politico report.

And while the bounce has failed to last, the Dow also briefly rose back into the green as the report received a broader audience.

 

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How to safely ignore everything that happened yesterday

Stock markets around the world were crushed yesterday…

The Dow Jones fell 800 points, its biggest dump since February. The Nasdaq fell 4% (its worst day in seven years).

Japan fell 3.9%. Chinese stocks fell 5.2% to their lowest since 2014.

And people are freaking out (the market’s fear gauge, the volatility index (VIX) surged 43.9% yesterday).

I’ve been writing for months that the current bull market could easily go on for another few years… or it could all come crashing down tomorrow.

It’s possible the market lemmings simply “buy the dip” once again and push the market back up. Or, maybe, we should be legitimately concerned…

The 24-hour news cycle never has a shortage of reasons for a big market fall (though always after the fact).

And there are plenty of reasons for stocks to fall today.

Rising rates, too much debt, trade wars… take your pick.

Right now, a major US retailer, Sears, is on the verge of bankruptcy. And if it goes down, 150,000 jobs go with it.

But it’s not just Sears that’s in trouble. A bunch of old-line retailers have been kept alive by cheap credit and too much money sloshing around the economy… otherwise they already would have met their inevitable faith.

Ask yourself, what real value does Sears – a dumpy, desolate and inferior department store –add to today’s economy?

What service does it provide that you couldn’t get elsewhere (probably for less money and in a much more pleasant environment)?

You can ask the same question about department store JC Penney, which has 100,000 employees and is also in financial trouble.

Last August, we said these retailers’ bankruptcies could be one of the many things that could spark the next recession.

At the time, Sears was trading around $9 a share (already down 95% from its peak)… today, shares are less than 50 cents.

But it’s not just the retailers that exist thanks to lax creditors… around 35% of companies in the Russell 2000 index haven’t earned a profit in the past 12 months.

So far this year, 83% of the companies that have gone public this year in the US are actually losing money.

And a full 14% of companies in the S&P 500 can’t cover the interest on their debt.

Like the old retailers, these corporate “zombies” only exist because of the ultra-low interest rates we’ve seen over the past decade and the trillions of dollars printed by the Federal Reserve… devalued money blindly found its way into every crevice of the economy.

As rates rise (the 10-year Treasury is over 3.2%) and central banks continue sucking liquidity from the system, those companies will be exposed for what they really are… worthless.

Despite the doom and gloom we discussed above, it’s still possible this market goes higher for another year or two. The truth is, nobody knows.

And given that uncertainty and how fragile the market is, doesn’t it make sense to acquire assets that will do fine regardless of the S&P 500’s daily moves?

There are plenty of ways to do this besides just stuffing cash under your mattress…

I think it makes sense to own some gold today. Gold has been real money for millennia. It’s also one of the only assets that hasn’t soared in the current “everything” bull market.

And while stocks plunged yesterday, gold went up.

As I’ve shared already this week, I’m also arranging a loan secured by a European estate that I’ll control. The collateral is worth 2x the loan amount, and I’m still making a double-digit yield.

I’ve also told Sovereign Man: Confidential readers about super conservative, asset-backed loans that pay up to 12% a year.

And there are still some corners of the stock market that offer value, if you look hard enough.

That’s what my Chief Investment Strategist, Tim Staermose, looks for in his value investing service, The 4th Pillar… well-run, profitable companies trading for less than their net cash.

It doesn’t get much safer than buying an entire company for less than the cash on its balance.

Still, there’s risk with any investment you make. Even if you’re holding physical cash, you risk missing out on future returns.

But the biggest, no-brainer risk free return is when you take legal steps to reduce your tax bill.

They say there’s no free lunch, but there actually is.

Paying less tax is free money.

 And there’s no risk… you follow the law and you get money.

That’s why I’m spending more time in Puerto Rico these days.

It’s also why I’ve spent so much time researching opportunity zones.

Opportunity zones allow you to take money out of the bloated, public markets and invest them in undervalued areas around the US.

And if you hold that investment long enough, you’ll pay ZERO capital gains tax.

It’s one of the greatest wealth-building deals I’ve seen… and the US government is begging you to take advantage of opportunity zones.

And if you reduce your tax bill to zero, you can sleep a lot better at night… regardless of what the stock market is doing.

Source

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How Much More Do The Quants Have To Sell

Last week, just before the stock market tumbled on the heels of sharply higher rates, we noted that one of the key culprits behind and indiscriminate selloff, systematic CTA funds and other quants were not yet present. Specifically, as Nomura’s Charlie McElligott said the bank’s latest CTA model showed that systematic-trend funds were “at- or near- deleveraging “triggers” however not quite there yet.

That’s no longer the case.

As we reported yesterday morning – just before the selling started in earnest – citing the latest data from Nomura’s cross-asset quant, CTA deleveraging had finally kicked in, creating -$66B of SPX for sale as “Long” position goes from +97% to +77% and then ultimately to +57% on the break below below 2895, a threat then can “self-fulfill” with front-run flows.

Fast forwarding to today when after Wednesday’s furious selloff, we have more specific numbers: the Nomura Quant Strategies CTA model had, as of yesterday’s close, reduced down to “43% Long” from “100% Max Long” 1 week ago, resulting in an estimated $88BN in one day selling on the one day move from “97% Long” where we began the day down to said “43% Long.”

What are the next levels? Well, according to McElligott, the next key CTA level from here is a 2719 break in the S&P, which would see further reduction down to just “9% Long” and would trigger an additional selling of $57B S&P futures.

Meanwhile, from the perspective of the much slower-moving Risk-Parity funds, which were also hammered over the past week, the change in global bond vol continues to generate a negligible selling-down in U.S. Equities at just a -$600MM of SPX deleveraging yesterday per Nomura’s Risk-Parity per our model.

However, the potential downside pressure is far more serious in the realm of SPX and NDX options, with SPX net Delta move -$459.2BN at a 0.1%ile move since 2013 (by comparison it was only -$55.4B the day prior).

This means that S&P Gamma is now at $24.2B per 1% move, with the 2800 and 2750 support lines mattering the most.

Looking at the Nasdaq which suffered an even greater drop yesterday, QQQ positioning has been walloped according to McElligott, with net Delta hitting -$32.7B (a 0%ile net delta since 2013, and more than double from the -$14.1B the day prior).

Ironically, as a result of all this selling pressure, the Nomura Fear & Greed replication strategy is at the 20th percentile (“bearish”) since 2004 and has generated a contrarian “Bull Signal” with forward looking analog for SPX actually showing a 1 month/3 month and 6 month median return of +2.0%/ +5.4%/+8.2%, all of which of course are at risk of large average drawdowns.

The chart below shows the approximated CTA breakpoints from here:

The next chart reveals some major moves which have already taken place across global equity CTA positioning:

Here is the SPX/SPY combined $ delta 6 months out:

… and the QQQs:

Finally, the risk parity allocation across asset classes:

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Trump Blames Market Correction On Fed, Says Won’t Fire Powell

With US stocks headed for their sixth day of losses, President Trump has decided to clarify that he’s “not going to fire” Fed Chairman Jerome Powell after bashing the central bank and its “aggressive” interest-rate hikes in comments made Wednesday night and Thursday morning. Trump’s not angry with the Fed chief, he said; rather, he’s just “disappointed.”

Trump

While Trump said he’ll let Powell keep his job (for now, at least), the president tripled down on his claim that the Fed is responsible for the 1,100 point two-drop in the Dow, saying that the central bank is being “too stringent.”

Here’s a roundup of key quotes from the interview, courtesy of Bloomberg:

  • “It’s a correction that I think is caused by the Federal Reserve,” President Trump says, when asked about the markets.
  • “I think the Fed is far too stringent and they’re making a mistake”
  • “I’m not going to fire him,” he says about Fed Chairman Jerome Powell

 

 

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Hedge Funds Are Getting Destroyed

While today’s cash market session started off confused, with the Dow crossing the unchanged line numerous times before the selloff once again accelerating, it follows a furious plunge yesterday which was driven by momentum stocks, and as noted yesterday, the MSCI USA Momentum ETF (MTUM) suffered it worst performance day ever on Wednesday.

The problem, as we discussed over the summer especially in the aftermath of the Facebook Q2 earnings fiasco, is that many of these momentum names are also among the most widely held hedge fund stocks. And while we already knew that hedge funds have had a bad year, as demonstrated by the fresh 1 year low print in the declining HFR equity hedge fund index…

… with the latest liquidation of momentum stocks, the recent market move has been absolutely brutal for hedge funds.

One place to watch the carnage first hand is the Goldman Sachs Hedge Industry VIP ETF, or GVIP, which was created to replicate exposure to stocks which are the most widely held by hedge funds long portfolios: this ETF has tumbled >7% from its recent just two weeks ago and has fallen 12 of the last 14 trading sessions. The current drop is now of similar magnitude to both the February VIX explosion and the March tech collapse.

And while it is common knowledge that the mega-cap tech names are – or at least were – a magnet for hedge funds, with the BofA fund manager survey reporting the “Long FAANG+BAT” as the most crowded trade for eighth straight month…

… a look at the performance over the past five days of some non-supercap “hedge fund hotels” which have at least 10% hedge fund ownership, paint a far more troubling picture of the bigger problem at hand for hedge funds. Here are the details from Bloomberg:

  • Roku -22% (Melvin, Whale Rock, Citadel, Hitchwood, Buckingham were among top hedge-fund holders as of the last filings, many of which were from June 30)
  • Trivago -18% (PAR Capital, 683 Capital, Greenhouse Funds, Altimeter, Apertura, Citadel)
  • Etsy -17% (Renaissance, DE Shaw, Millennium, Citadel, Black-and-White, Goodnow, Hitchwood)
  • Spotify -16% (Tiger Global, Coatue, Steadfast, Lansdowne, Jericho, Soros, Hitchwood)
  • Stitch Fix -15% (Light Street, Steadfast, Hitchwood, Park West, Citadel, Garelick, Scopus)
  • ANGI Homeservices -15% (Luxor Capital, TCS Capital, SQN, Tiger Eye, PAR Capital)
  • Autodesk -14% (Viking, Tiger, Darsana, PointState, Meritage, Citadel, Sachem Head)
  • GoDaddy -14% (Select Equity, Renaissance, Egerton, Brahman, Silver Lake, DE Shaw)
  • Square – 13% (DE Shaw, Lone Pine, Whale Rock, Matrix Capital, Hitchwood Capital)
  • Lululemon -13% (AQR, Laurion, DE Shaw, Renaissance, Arrowstreet, Millennium, Alyeska)
  • Goodyear Tire -12% (Diamond Hill, Citadel, DE Shaw, Moon Capital, AQR, Portolan)
  • Ralph Lauren -12% (Renaissance, AQR, Millennium, DE Shaw, Maverick, Arrowstreet)

Needless to say, this is the last thing the industry needed, when it was already suffering from shrinking assets, bad performance, and prominent hedge fund closures such as lthe $12.1 billion Highfields Capital fund, the $2 billion Criterion Capital fund, and Tourbillon’s Jason Karp returning $1 billion as he shuts his main fund.

So with this latest “hedge fund hotel” devastation, one wonders just how many more fund managers will be forced to shut down, and liquidate the rest of their holdings, in the process perpetuating the selloff as more of the most widely held names by hedge funds have to find willing buyers in a market where idea dinners have already made them the most widely held stocks of the “smartest people in the room.”

 

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NYPD Cop Caught on Video Punching, Tasing 85-Pound Man With Health Problems

Newly released cellphone video shows a New York Police Department (NYPD) officer punching and tasing an 85-pound man with health issues.

In the video, it’s obvious that 24-year-old William Colon does not want to be arrested. But it’s hard to believe that the 4’8″ man posed a serious threat to the cops who had entered his Staten Island apartment. Making matters worse, there seems to be a good chance Colon didn’t do anything wrong in the first place.

The incident in question occurred on September 28—Colon’s birthday. Colon told the New York Daily News he had been arguing with his girlfriend of 4 years, Lissette Torres, over some birthday gifts she gave him. A neighbor heard the argument and called 911, but by the time police arrived, Colon’s brother Jazz had walked Torres out.

Cellphone video taken by Jazz and released by the Legal Aid Society, which is representing Colon, shows what happened next:

Several police officers can be seen entering the apartment, despite both brothers’ protests. One of the officers pushes Colon onto a bed and attempts to restrain him, even as Jazz warns that his brother has “medical issues.” Colon, for his part, repeatedly claims he “didn’t do nothing.”

At one point, the officer pulls out his Taser, prompting Jazz to say that “if you tase him, he will get hurt.” Jazz tells his brother to “put your hands behind your back,” but Colon won’t comply, instead saying again that he “didn’t do nothing.”

Several officers are finally able to restrain Colon and hold his hands behind his back. But as Colon is pinned facedown on the bed, the officer who had previously pulled out the Taser starts punching him. The cop, who the Legal Aid Center identified as Vincenzo Trabolse, then tases Colon.

Colon says his health issues made the experience even worse. According to the Daily News:

Colon is afflicted with a range of health issues that he claims have made him frail. He says he has Mauriac Syndrome, an illness related to diabetes that causes dwarfism. He is also asthmatic, has curvature of the spine and has an intestinal disorder.

“When they tased me, my blood sugar skyrocketed,” Colon told the newspaper. “I was very nauseous and pale and vomiting. They thought I was going to go into a diabetic coma. I had to go for X-rays. My body was sore and bruised.”

A police official, however, said a scratch on the shoulder was the only real physical injury Colon suffered. “The majority of the time he was in the hospital was for psychiatric observation because he had a history [of psychiatric issues],” the official told the Daily News. “We have eight body-worn camera videos which support our report.”

The Staten Island District Attorney’s Office said in a statement to Patch that Colon had called one of the officers a “pig” and a “p—y.” Both the district attorney’s office and the NYPD said they will investigate the officers’ conduct.

Colon, meanwhile, has been charged with assault and resisting arrest. Torres “suffered clear and obvious injuries to her face,” a spokesperson for the district attorney told WPIX. According to a criminal complaint, Colon punched her in the face.

But that’s not what happened, says Colon. His lawyers told the Daily News that Torres fell while she was leaving the apartment.

And Torres herself denies that Colon hit her. “She stated to me that Mr. Colon did not hit her, and she did not call the police,” her lawyer, Lou Gelormino, told WNBC.

According to Gelormino, that’s not what the cops wanted to hear. “She further stated that she was taken to the police station under the false pretense that they were going to drive her home,” Gelormino said. “When she got to the station the police threatened to charge her with various crimes unless she made a statement attesting to the fact that Mr. Colon hit her and then said the police officers told her exactly what to write.”

Obviously, all the facts have yet to come out. But the conduct of the officers, particularly Trabolse, is troubling. For one thing, Colon clearly didn’t pose a threat to the eight officers in the room. Punching and tasing him was almost certainly unnecessary, especially after the cops had been warned about his medical problems. And even if Colon insulted the officers, that doesn’t justify violence. Hurting him because he insulted police officers is a form of extrajudicial punishment, which cops are not and should not be authorized to carry out.

Hopefully, internal affairs will also look into officers’ interactions with Torres. If what her lawyer says is true, then the cops tried to force her to lie, possibly so their treatment of Colon would appear justified.

It’s worth noting that the NYPD doesn’t exactly have a great track record when it comes to treating innocent people like criminals. Consider the officers who raided the wrong house and arrested the family inside (before posting pictures of the raid to Snapchat), as well as the Coney Island cop who assaulted a man over a dropped drink.

The NYPD needs to build trust within the community. Incidents like these don’t help.

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Disgruntled Amazon Workers About To Be Replaced By Fleet Of Robots

Amazon, which announced a $15 minimum wage bump for 250,000 employees last week, is developing a fleet of “picking” robots to staff its warehouses, known as fulfillment centers, according to The Information, citing three people with knowledge of the work. 

Robot picker designed by Kindred Systems

Warehouse pickers grab items from shelves and put them into bins before they are prepped and shipped. The new robots will be able to visually identify items as they speed down a conveyor belt, then pick them up with a compressed-air vacuum gripper before moving them onto a table or shelf – said an employee who witnessed the robot in action. 

That said, our future robot overlords aren’t quite ready for prime time. 

For its part, Amazon says picking robots aren’t yet ready to handle the huge variety of items in Amazon fulfillment centers, with their different shapes, weights and sizes. In an emailed statement, Brad Porter, vice president and distinguished engineer at Amazon Robotics, said human pickers are also much better at spotting problems such as a leaking jug of laundry detergent before it is shipped to a customer.  

“We regularly look at our operations and evaluate how we can bring technology to create new solutions for employees,” said Mr. Porter. “When it comes to using robotic manipulation for item picking, while we’re encouraged by the work in the research community, the simple fact is the current state of the art is not capable of handling the diversity of Amazon’s product selection.” –The Information

Amazon began using automation in its fulfillment centers six years ago. During the same period, they have hired over 300,000 employees worldwide. Of the company’s 185 fulfillment centers, over 25 of them, or around 14%, utilize robots. 

“We need advanced technology and automation to meet customer demand—it’s just that simple,” says Porter. 

Opportunity costs

In recent years, strong growth in warehouse jobs has been accompanied by headlines criticizing various companies for low pay and disgruntled employees. Thanks to low unemployment, Amazon has found it increasingly difficult to attract workers – hence the wage increases. All of this means a more expensive workforce, which is a major reason for the push to replace humans with robots. 

In 2012, Amazon acquired robotics startup Kiva Systems for $775 million, as Amazon’s warehouses are well-suited to repetitive tasks. That said, ” in a setting like an Amazon warehouse machine-learning algorithms must advance significantly so the machines can recognize the appropriate items they need to select from an array of objects,” according to The Information, which adds that there is “little doubt among academic researchers and engineers that those hurdles will eventually be overcome. That could have profound implications for jobs, as online commerce continues to devour more of the retail business.”

Amazon has previously sought to encourage innovation in picking robots with an annual contest, in which participants would compete to develop robots that could perform tasks such as grasping items and placing them on shelves. Amazon awarded $270,000 in prizes to winners of its 2017 robotics challenge. Most contestants came from academia, as opposed to startups.

Amazon didn’t hold the event this year, and instead has shifted its focus to funding proposals in academia through its Amazon Research Awards program, said a person close to Amazon. –The Information

Getting into the picking scene

Online retailer JD.com, meanwhile, has announced plans to conduct a December “picking challenge” of its own in Tianjin, China. The company boasts a fully automated fulfillment warehouse in Shanghai run by a skeleton crew of humans whose job it is to monitor and maintain the machines. 

Experts differ on how long it will take before e-commerce fulfillment is fully automated. 

Jeff Mahler, CEO at Ambidextrous Laboratories, a robotics startup that was recently spun out of University of California, Berkeley, said some parts of fulfillment can be automated in the near future, such as organizing products on shelves in warehouses. But humans will still have a role to play for some time because robots have a tough time grasping certain objects due to hardware limitations, he said. For example, it is difficult for them to pick up objects that are hard to see, such as a water bottle, he said.

More Aggressive Estimates

Older startups are more optimistic that picking robots will be widely deployed sooner. RightHand Robotics, a company that sells picker robots to retail, pharmaceutical and grocery companies, can handle hundreds of thousands of product SKUs at rates that can exceed 1,000 units per hour, according to Vince Martinelli, the head of product and marketing.

“Once the system is configured to perform a picking and placing function, no human involvement is required for normal operation—even for the majority of exception handling cases,” said Mr. Martinelli, who previously worked at Kiva Systems. –The Information

Robotics startup Kindred Systems has used data obtained from human operators to help train its robots to grasp objects. The company is now phasing out humans – having learned our ways – according to CEO Jim Liefer. Kindred’s robots were operating at 20% autonomy in late 2017. Roughly one year later that figure now stands at 85% according to Liefer. 

According to futurist and author Martin Ford, Amazon will have replaced most of its human pickers with autonomous robots within five years. 

According to Ford, the productivity gains made in automation won’t matter if there aren’t enough employeed people to spend money on consumer goods. “We have to solve the problem of getting rid of people and replacing them with machines.” 

 

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Dow Down 1700 Points From Highs, Futures Near Overnight Lows

Another 300 points drop today and the cash Dow is now down almost 1700 points from last week’s 26,951 highs…

 

The dead cat bounce is dead…

And Nasdaq is leading the charge lower…

We’re gonna need more claiming tones from The White House!!

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WTI Extends Losses Below $72 After Big Crude, Cushing Build

WTI is extending losses after DOE reported a bigger than expected crude (and Cushing) inventory build, after API reported the biggest crude build since Feb 2017 and OPEC cut its global demand estimates.

Of course, OPEC was careful to play down its demand downgrade:

“There is no cause for alarm,” Barkindo said at the Oil and Money conference in London. OPEC and its allies “are ready and willing to continue to make sure that the market remains well supplied.”

“We are now gradually but steadily seeing the brighter path ahead, [That’s] despite some of the bumps, despite some of the occasional clouds that have gathered.”

As Bloomberg Intelligence Senior Energy Analyst Vince Piazza notes, a mix of U.S.-China trade tensions and elevated crude prices pose a near-term risk to the oil market. With WTI above $75 a barrel, we believe crude has moved too far, too fast. Saudi Arabia seems comfortable with Brent below the current $85. At current prices, we expect increased hedging by U.S. producers and an extension of robust output, fostering a negative feedback loop.

But, despite OPEC and the storm shut-ins, all eyes were on inventories (at least in the short term)

API

  • Crude +9.75mm (+2.5mm exp) – biggest build since Feb 2017

  • Cushing +2.3mm (+800k exp) – biggest build since March 2018

  • Gasoline +3.4mm – biggest build since June 2018

  • Distillates -3.5mm – biggest draw since May 2018

Keep in mind that the API reported a build of about 1 million barrels last week.  The EIA then came out and said there was a build of nearly 8 million. So part of this big number by the API could be a catch-up for last week.

DOE

  • Crude +5.987mm (+2.5mm exp)

  • Cushing +2.359mm (+800k exp)

  • Gasoline +951k

  • Distillates -2.666mm

After a massive reported crude build by API, traders were apprehensive ahead of the official DOE data – especially after last week’s big crude draw – and DOE reported a big crude draw of 5.987mm barrels (less than API but still big). Additionally, as Bloomberg notes, we’ve swung from fears of tank bottoms at the Cushing storage hub to concerns about how quickly it’ll grow…

WTI sunk below $72 ahead of the DOE data, heading for the biggest 2-day drop since July, and held those losses on the crude build…

“The oil market can not shield itself from the rout in equity markets,” said Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd. in Zurich.

Meanwhile, WCS settled at $26.17/bbl, lowest at close since August 2016, pushing Western Canada Select’s discount to West Texas Intermediate crude to $52 a barrel on Tuesday, the widest on record…

The plunge in Canadian crude prices may dent exploration budgets and shrink the nation’s rig fleet, according to the chief executive officer of a major drilling contractor. The discount on Canadian crude will hammer cash flow, Precision Drilling Corp. CEO Kevin Neveu said at an event in Calgary.

With Canada’s debt and equity markets “almost closed” to energy producers, cash is the sole source of funding for drilling, he said.

“If cash flows get crimped back on a quarterly basis or a daily basis by the widening differential, they would adjust their rig counts sometimes even weekly,” Neveu said.

However, there is a silver lining as The National Post reports, Chinese oil buyers are making a beeline for a bargain across the Pacific.

With Canadian oil over 60 per cent cheaper than U.S. benchmark West Texas Intermediate and global marker Brent, China’s refiners are being lured to the heavy and sludgy crude. That’s because, apart from being a source of fuel, it’s also rich in bitumen – a black residue used to build everything from roads to runways and roofs.

“The policy of boosting infrastructure investment has been bullish for bitumen,” said Li Haining, an analyst with industry consultant SCI99 in China’s Shandong province. “The supply of the Merey grade has been disrupted since May, pushing refiners to look elsewhere. As late-September and October is traditionally the peak season for construction projects in China, demand will be further supported.”

Apart from Canada, China has also turned to producers such as Brazil for alternatives, said WengInn Chin, a senior oil market analyst at industry consultant FGE in Singapore. Demand for heavy crude is particularly high among the Asian nation’s independent refiners, known as teapots.

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