An Ominous Cloud

The June report on Japan's trade surplus shows why oil should keep falling in price. The highlights of the report:

1) Exports to the U.S. were down 15.4 percent, the tenth straight monthly drop and the largest since November 2003.

2) Exports to Europe fell 11.2 percent, the second straight decline.

3) Total exports decreased 1.7 percent in June from a year earlier.

An Oil Bull then pops his head up and screams, "Oh don't worry, China and the rest of the emerging markets will make up the slack, you'll see."

Well, not quite:

4)Exports to Asia grew 1.5 percent, the slowest in two years.

5)Exports to China grew 5.1 percent, less than the 12.2 percent growth in May 2008, and down from 23% growth in May 2007.

It won't be long until official figures from China show a slowdown and/or decline in China exports.

A global slowdown in economic activity starts in the U.S., spreads to Europe and Japan, and then hits China and the rest of the emerging economies of the World. This makes perfect sense since we are the largest consumers in the world, and it takes some time for a slowdown in that consumer spending to work its way through the supply chain.