According to a precious metals dealer I spoke with, the world out on the street is that demand for gold and silver has recently surged due to investor concerns about a disruption to the Global Supply Chain. We are already seeing a massive slowdown in China’s oil demand as official reports show a 20% reduction in oil consumption.
However, I believe China’s oil demand is much lower than the 20% figure reported by Bloomberg and reposted by Gulfnews.com on Feb. 3rd:
According to the article, China’s total oil demand is approximately 14 million barrels per day (mbd). The IEA, International Energy Agency, in their January 2020 OMR Report reported that China’s total oil demand would reach 14,046,000 mbd in 2020. Using the IEA’s data, here is China’s total oil consumption from 2017-2019, including the forecast for 2020, and the significant drop in demand in February:
The Bloomberg article stated that China’s total oil demand was down approximately 3 mbd by early February. Again, the article was published on Feb. 2nd. For China to cut 20% of its oil consumption… THAT’S A BIG DEAL. But, I think it’s much worse than that. According to the next two charts, one is taken from a new article on Gail Tverberg’s Ourfiniteworld.com website, and the other is from Capital Economics.
The first chart from CapitalEconomics.com shows a huge reduction in China’s Daily Passenger Traffic, including road, railway, freight, and ship:
The RED ARROW indicates when Bloomberg reported the 3 mbd decline in China’s total oil demand. Who knows at what date Bloomberg used to base their figure on 3 mbd drop in oil consumption, but this chart shows that total China daily traffic is down about 80% since January if we go by the right-hand scale. Thus, this chart reveals that China’s daily traffic flow has been down approximately 80% for more than two weeks.
So, how can China’s oil demand only be down 3 mbd??? Again, the 3 mbd is about 20% of China’s total of 14 mbd of oil demand. The next chart from Ourfiniteworld.com shows how much China’s daily traffic should have picked up after the Chinese Lunar New Year Holiday was over:
Actually, if we go by 2019’s data (lighter blue bars), daily traffic was even higher after the Chinese Lunar New Year Holiday ended. In looking over these horrible figures, I can’t see how China’s total oil demand is only down 3 mbd (20%), if the information in these charts is accurate. And, I believe it is.
This next chart shows my calculation of China’s REALISTIC total oil consumption currently. If the data in the charts above are reporting an accurate picture of the decline in total daily traffic, there is no way China is consuming more than 7 mbd, or 50% less than they were in January:
Assuming China’s total oil consumption is down 7 mbd, that is EXTREMELY BAD NEWS for the Global Economy and Global Supply Chain. This is why we see a surge in physical precious metals purchases recently. And, if the situation in China isn’t resolved in the next 1-2 months, we could easily see supply chain disruptions throughout the world.
With demand for physical precious metals bars and coins picking up considerably recently, this may not be a short-term phenomenon. Rather, if the Global Supply chain becomes even more problematic as time goes by, there could be a huge surge in demand for physical precious metals.
Remember, it’s important to own a variety of sizes of physical precious metals. For example, Official Silver coins and rounds that are 1 oz, or even in smaller denominations, are wise to keep a good stock for trading purposes. While a quarter oz (0.25 oz) silver round may only be worth about $4.5 currently, what happens if the silver price rises significantly in the future?? What happens when silver goes back to $50 an ounce?? That 0.25 oz silver round is now worth $12.5. So, owning some 1/10th oz, or 0.10 oz silver rounds may also be wise to add to one’s holdings.
Unfortunately, I believe the world is seriously underestimating the situation that is unfolding in China and soon the rest of the world as it pertains to the Global Supply Chain. Watch over the next 2-4 weeks to see if the Global Supply Chain comes under more stress. If the situation continues to worsen, this will cause more stress in the financial markets and economy, forcing more investors into owning physical precious metals.
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