Yesterday when the yuan had weakened almost 2%, the slide in commodity prices was cited as evidence of the market's concern that China was going to export deflation. This weighed on the dollar-bloc currencies, and the currencies of other commodity producers. Today the yuan has fallen further, oil prices are higher as are the dollar-bloc currencies and the main commodity producers in the emerging market space. 

To attribute everything to China is to make analysis superfluous. Take a look at oil. China's trade report last weekend showed oil imports in volume terms increased. Oil prices have stabilized today after the sharp sell-off yesterday. 

Many attribute the decline in oil prices this week to China. This makes is a demand story. Yet, the pressure was coming from the supply side.  Specifically, the largest refiner in the US Midwest, which can process 250k barrels of heavy crude a day, had to shutdown due to leaking pipes. This oil that could not be refined is adding to the oversupplied markets.  

Moreover, with the numerous pipelines, the extra appears to be primarily from Canada's tar sands. The benchmark is Western Canada Select. Today is the tenth consecutive session that prices for it are lower. It is now  trading near $23.50 a barrel. Canadian oil has not been this cheap since the end of 2008. This is a nearly 58% decline since early June. 

Canada's oil from the tar sands is expected to increase by 6% this year to 2.3 mln barrels, according to reports citing the Canadian Association of Petroleum Producers. Unlike US production, output from the tar sands require longer lead times and are not as easy to shutdown.  In addition, the high fixed costs associated with such production encourages continued production, even if at a loss. Saudi Arabia's strategy of stepping up output to drive the price lower is working, but it is not having much impact on North American output.