Editor's Note: We're sharing this with you today because of the extraordinary effect that China's currency moves are having on the oil market. You see, Kent is predicting that the oil price drop will present some serious "Buy" opportunities as consolidation accelerates in a distressed U.S. market. Kent regularly covers new oil profit plays like this in his weekly Oil & Energy Investor updates, which you can get by clicking here. Here's Kent…
When the People's Bank of China (PBOC) cut the value of the yuan by 2% on Tuesday, it was the biggest one-day drop for the currency in more than 20 years.
Crude oil and stocks sank on Tuesday, as well, with oil scraping six-year lows.
Tuesday's action would have been enough… but then the yuan plunged all over again on Wednesday, despite PBOC efforts to prop it up, triggering even more volatility.
This means the U.S. oil sector is in for another painful period, but that pain is going to give rise to some irresistible profit opportunities that we're getting ready for now…
China's Move Was Hardly Drastic, Even If the Impact Was
The yuan announcement was a shocker. It's a signal that Beijing has decided to shore up its slackening exports.
It's all but certain that other Asian economies will follow suit in the "race to the bottom" that's the hallmark of currency wars.
Technically, the PBOC move amounted to a change in the way the central bank calculated the value of the yuan against the U.S. dollar by revising the way in which the daily midpoint is determined. Now it will result from market makers' quotes and the previous day's closing price.
Making one's currency cheaper against major outside trading currencies effectively reduces the price of exported goods. They are now produced by cheaper domestic payments that allow outsiders using hard currency to reduce their payments for what is produced.
More broadly for oil, this is seen as a sign of further weakening in Chinese industrial demand for energy.
That prognosis may be a bit premature (since there will be no figures to sustain a judgment either way for at least three months), but nonetheless it will feed into the current market's penchant for overreacting emotionally to each new development.
Since this news follows major declines on Chinese stock exchanges, pundits will now bang the drums for a Chinese-led restraint on oil prices.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.