Need to Know: Oil headed to $10? China may be in the driver’s seat

So another week begins, and many investors may be wondering how many records will be broken now — at least those that have nothing to do with Mother Nature.

That synchronized global uptrend is looking pretty intact, with almost every major world equity index at or near record highs. Asia has kept that going, and the Dow looks set for a fresh high this morning. Note that it’s been an incredible 236 days since the S&P 500 has had a decline of at least 3%.

This so-called “euphoriameter” says it all:

But alas, not all assets have been joining the party. Oil — incidentally trekking up this morning on unrest in Iraq and questions about the Iran nuclear deal — is set to finish the year with a whimper.

That leads us to our call of the day, which predicts things won’t get better for crude prices. In fact, they will probably get much worse thanks to China, according to Nick Cunningham, who tracks oil and the renewable energy beat.

“As the world’s largest auto market, China’s EV (electric-vehicle) policy, which is still being formulated, could supercharge the race for EVs,” says Cunningham in a blog post for Oilprice.com.

He rattles off a number of signs of China’s electric-car gear-up, such as big planned investments and a growing clampdown on autos that cloud its skies with pollution.

“It will only take a small change in oil demand to upend price forecasts. After all, prices crashed in 2014, falling from $100 per barrel down to $50 in less than a year,” he says.

Cunningham points to a Financial Times report that says China plans to produce 7 million EVs per year by 2025 and to spend at least $60 billion on related subsidies between 2015 and 2020.

And a Bloomberg New Energy Finance report that predicts EVs will cut crude demand by 8 million barrels a day by 2040 should “send chills down the spines of oil executives,” he warns.

Cunningham was expanding on a prediction made by Chris Watling, who believes growing interest in alternative energy fuels could drive oil prices to $10 a barrel over the next six to eight years.

The Longview Economics chief told CNBC on Friday that a key catalyst would be Saudi Aramco’s IPO — planned for later 2018, but now looking in doubt — saying they “need to get it away quickly before oil hits $10 a barrel.”

Cunningham didn’t lay out when oil might take a hit from the Middle Kingdom’s EV push, but seemed to see it as a sure thing.

“The exact point we reach peak oil demand is obviously very debatable, but in general, the mass adoption of EVs could permanently keep oil prices low, even under some relatively modest assumptions about the growth of the EV market,” he says. Read the full post here.

Key market gauges

DJIA

YMZ7, +0.05%

 , S&P 500

ESZ7, +0.01%

  and Nasdaq

NQZ7, +0.09%

  futures are all steady, but just a small rise for the Dow

DJIA, +0.13%

 would leave blue chips in record territory.

As mentioned, WTI crude

CLZ7, +1.39%

 and Brent

LCOZ7, +1.52%

 prices are trekking higher, driven in part by fear fighting between Iraq and Kurdish separatists will disrupt supplies. Gold

GCZ7, +0.25%

 and silver

SIZ7, +0.28%

are inching up.

The dollar

DXY, +0.02%

 is moving up against the euro

EURUSD, -0.1100%

 , after Catalonia’s leader defied Madrid’s demand for clarity on independence. Spanish stocks

IBEX, -0.71%

are weighing on the rest of Europe

SXXP, +0.03%

In Asia

ADOW, +0.80%

 , the Hang Seng Index

HSI, +0.76%

  closed at a 10-year high.

See the Market Snapshot column for more.

The chart

In among that Asia cheer, the Nikkei 225 index

NIK, +0.47%

  nabbed another 21-year high on Monday. While it may be hard for U.S. investors to get excited about Japanese stocks, MKM Partner’s chief market technician Jonathan Krinsky says they could be missing a big opportunity here.

He explains that Japanese stocks’ secular cycles are longer than the 15-to-20 years seen in the U.S. The last bear market ran for 28 years, and that’s how long the current bear market has been around, as this chart shows.

Here’s what he has to say about the second chart: “Whether or not you want to call an end to the secular bear in Japan, it’s clear that the Nikkei is in a strong uptrend now.”

“There is an entire generation that has not witnessed a secular bull market for Japanese equities. The fact that Japan is breaking above a 25+ year secular trading range should not be taken lightly, in our view.”

Note that a snap general election in Japan is set for Sunday. Here’s all you need to know about that.

The buzz

Apple

AAPL, +0.63%

 got upgraded to overweight at KeyBanc Capital Market. It set a price target of $187 for the iPhone maker, citing a more “aggressive market segmentation strategy.”

A busy earnings week kicks off with Netflix

NFLX, +1.85%

 after the close. The streaming service is forecast to report earnings of 32 cents a share — 167% higher on the year and up more than 113% on the quarter.

Bitcoin

BTCUSD, +2.90%

 , which went roaring higher last week, is sitting just over $5,600. WikiLeaks founder Julian Assange over the weekend had this to say about a big bump he’s seen in his bitcoin investment:

An oil platform operated by Clovelly Oil exploded Sunday in Lake Pontchartrain near New Orleans, causing multiple injuries.

Data from China showed producer prices shot up 6.9%, the latest surprise out of the country.

Ophelia, which was the most powerful hurricane seen so far east in the Atlantic, has weakened but is still putting Ireland on lockdown:

The economy

The data calendar is less packed this week, but we will get some updates on housing starts and sales, along with the Fed’s beige book. For Monday, the Empire State index is due at 8:30 a.m. Eastern Time.

Check out our economic preview for the week.

Meanwhile, Fed Chairwoman Janet Yellen left open the possibility of further interest rate rises in 2017, speaking at a Group of 30 banking seminar on Sunday.

The quote

“A lot of people thought I was probably exaggerating it, but now we are worried and Congress is worried about whether they can take that power away from Trump so that in a moment of pique he doesn’t pick up that phone and call whoever is sitting in the control center today.” — That was Hillary Clinton telling a London audience on Sunday evening that she’s worried POTUS could launch a nuclear missile.

Random reads

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Colin Kaepernick says NFL owners have colluded not to hire him

Larry Flint offering $10 million for info that leads to POTUS’s impeachment

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Microsoft is building tree houses for its employees

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