Daily Commentary

MarketMinder’s View: With questions about global oil supply still rampant, this piece sheds some light on a largely overlooked factor: China’s supply glut. Though the Middle Kingdom cut oil imports by roughly one-third since the war’s start, “the crude stockpiles held by the country’s state-owned energy companies remain nearly full. Beijing appears not to have tapped its vast strategic reserves, and storage tanks at Chinese refineries are brimming with gasoline, diesel and other refined products.” As the article aptly explains, this is likely tied to China’s preemptive filling of its reserves pre-Iran war as part of a broader push for self-reliance amid potential supply disruptions (not to mention its long-term strategy of boosting oil imports when prices were low to build stockpiles and reduce its trade surplus). With these stockpiles available, analysts quoted herein suggest Chinese crude oil imports may not return to prewar levels for a while. Given China’s role as the world’s top oil importer, this likely frees up crude for other importers across Europe and Southeast Asia, helping Asia continue adapting to the drop in Chinese diesel and gasoline exports if shipments of refined products remain restricted. Pair this with expectations for rising oil and gas production globally, and there is plenty of evidence that global oil supply shortage worries are off base.

MarketMinder’s View: As headlines herald America and Iran’s peace deal—paving the way to reopening the Strait of Hormuz—this article shares several sensible reasons why the conflict didn’t cause severe global energy shortages. As the first two points argue, countries were well-prepared—large importers had plenty of strategic reserves and commercial inventories—and producers adapted. “Middle Eastern energy producers found ways around the closure of the strait faster than many energy experts predicted, while other producers—including the U.S.—stepped up production and exports to plug some of the gap. Exports from Saudi Arabia’s Red Sea port of Yanbu have jumped to around four million barrels a day from less than one million before the war, according to commodities and shipping data provider Kpler.” Consumers altered their behavior, too—China reduced oil imports and drew from its reserves—and major economies in general are more energy efficient than they were in the not-too-distant past. We are less convinced the AI boom offset energy’s drag, considering the latter isn’t a major sector and growth driver for most developed economies, but overall, this piece nicely illustrates the global economy’s resilience over the past few months. That isn’t a surprise to stocks, which have long since moved on, but we think it shows what they have been pricing in since March’s end. For more, see our June commentary, “Are World Oil Reserves Dangerously Low?”

MarketMinder’s View: Please note, MarketMinder doesn’t prefer any politician over another, and our analysis focuses on politics’ economic, market and personal finances effects (if any) only. In the Land Down Under, Prime Minister Anthony Albanese has proposed several changes (highlighted by the titular small business exemptions) after industry groups and the opposition pilloried his Labor government’s recent contentious capital gains tax reforms, which currently lack majority support in Parliament. While the article gets into the specifics (which focus on small businesses and startups, not individual investors), our interest is more with how the process is playing out, as the Aussie government’s backtracking sounds eerily familiar to other governments’ walking back planned changes (see the UK’s recent delay to Isa tax rules). Globally, there is a trend of governments announcing tax changes, then watering them down, leaving reality more benign than investors anticipated. That is generally positive for markets, which move most on the gap between reality and expectations. Also worth noting: “The announcement of the concessions comes on the eve of a Senate inquiry report into the reforms, with the government eager to pass the initial bill before parliament rises for the winter break on 2 July. … The Coalition remained opposed despite the new concessions, meaning the fate of the legislation hangs on a deal with the Greens.” The Greens aren’t ready to support the legislation, meaning further compromises may be in the works. However this all plays out, the Albanese government’s struggles to enact tax reform isn’t exclusively Australian—this is what often happens in developed economies with democratic governments. While this gridlock can be frustrating for voters, it is a reason why investors shouldn’t presume extreme-sounding legislative change will automatically become reality. (And in this case, we doubt the capital gains changes are a big deal for stocks, as our May commentary, “Around the World in Tax Policy Talk” discussed.)a