File this under “Hmmm!”
“China’s exploding demand for oil — one factor that helped drive petroleum prices above $40 a barrel this week — has put energy markets at increased risk of disruptive price spikes and crashes, according to a study by an influential forecasting group.
Oil analyst Daniel Yergin, chairman of Cambridge Energy Research Associates and co-author of the study, said China has become a decisive but unpredictable player in world oil markets, because its fast-growing manufacturing economy is prone to sudden shifts in petroleum demand.
“China will be the most dynamic element in the oil market for several years,” Mr. Yergin said. China last year passed Japan to become the world’s second-largest oil market, after the U.S.”
“China’s exploding demand for oil — one factor that helped drive petroleum prices above $40 a barrel this week — has put energy markets at increased risk of disruptive price spikes and crashes, according to a study by an influential forecasting group.There’s little doubt that as China’s economy cools, so will its demand for oil:
“China’s growing thirst for oil — plus strong demand for gasoline in the U.S. and fears of supply disruptions in the Persian Gulf — has driven oil prices to their highest levels since oil futures started trading on the New York Mercantile Exchange in 1983. The price for U.S. benchmark oil for June delivery settled at $41.08 Thursday, up 31 cents from Wednesday.
Iraq hasn’t yet repaired a sabotaged pipeline feeding its two offshore oil-export terminals, missing a target set by the country’s oil minister this week. The attack has cut Iraqi exports by 600,000 barrels a day, or almost a third.
Saudi Arabia, de-facto leader of the Organization of Petroleum Exporting Countries, is quietly asking ship brokers for extra tankers in the second half of next month to transport crude to the U.S., according to people in the Persian Gulf shipping business. The extra oil wouldn’t reach American shores until late July. Still, the move reinforces the kingdom’s call on OPEC this week to raise output quotas and echoes steps taken by Saudi Arabia in previous tight markets — including just before the U.S.-led invasion of Iraq last year — that helped damp prices.”
But as you can see by this chart, it appears that China’s central planners (those crafty capitalist commies!) are actually succeeding in slowing down their red hot economy:
This is likely to play out in the near future as a China maintaining a fast growing economy — figure a GDP of 7.5% or so — instead of a 9+% GDP.
This suggests to me that — once again — the contrarian play (See Barron’s Big Money Poll) will be the correct bet. Look for a peak in oil over the Summer.
Sources:
Chinese Oil Demand Puzzles Market
Bhushan Bahree
Wall Street Journal
May14,2004;PageA6
http://online.wsj.com/article/0,,SB108448431588911131,00.html
Chinese Economy May Be Cooling
Owen Brown
Dow Jones Newswires, May13,20049:27p.m.;PageA10
http://online.wsj.com/article/0,,SB108442500794310426,00.html
Charts courtesy of the WSJ
Krugman talked about the impact of Chinese demand in the context of a possible oil driven recession. The he said something that made me think of you:
“Each $10 per barrel increase in crude prices is like a $70 billion tax increase on American consumers, levied through inflation.”
Sleeping Giant — the Bank of China.
“While China accounts for only 4 percent of world GDP, it has accounted for as much as 15 percent of the world’s GDP growth and almost 20 percent of…
Sleeping Giant — the Bank of China.
“While China accounts for only 4 percent of world GDP, it has accounted for as much as 15 percent of the world’s GDP growth and almost 20 percent of…
On Monday the 25th of October crude oil soared to $55.67. The dramatic rise in oil was primarily triggered by a continuous flow of economic data demonstrating China’s enormous energy appetite.
On Wednesday, October 27th, new data indicating the high cost of energy could begin to cool down the Chinese economy, plus news of an even far greater jolt rocked markets around the world, China’s central bank raised its benchmark interest rates for the first time in nine years, a move that may reduce growth in fuel consumption, along with effecting the bond, currency & stock markets.
On that batch of news oil prices sunk quickly and by Thursday at the closing bell oil had lost 8% of its value, losing over $5 a barrel edging, nearer $50 a barrel, as China’s surprise interest rate rise stirred concerns over demand growth from the world’s second largest energy user.
How things change. In 1999-2000 the Mainland was only beginning to be factored into global crude oil price trending, based on supply & demand. Traders soon realized the massive expanding Chinese economy would place demands on world-wide energy supplies, coupled with metals & materials for construction, increased imported grain requirements, along with other key commodities not in abundant stock within Mainland China.
In closing, as I type this, the price of the December-2004, Nymex, light sweet crude is $50.74, down only 18 cents. The question remaining is, will the typical ‘profit taking Friday’ reduce oil to under $50 a barrel, or has the ‘China Oil Drop’ run its course?
Oil Update for June 18th, 2005
Oil sets new record at $58.60
By Bernie Woodall
Reuters
NEW YORK (Reuters) – Oil prices set a new record of $58.60 a barrel on Friday, after the United States and other Western nations shut consulates in oil-producing Nigeria following a terrorist threat.
Concerns about the ability of U.S. refiners to cope with strong U.S. demand, despite rising fuel costs, also helped propel prices above the record of $58.28 set in April.
U.S. crude hit the record near the end of Friday’s trading session on the New York Mercantile Exchange.
In London, Brent crude also hit an all-time high of $57.95 a barrel on the International Petroleum Exchange, breaking the former record of $57.65 set in April.
U.S. crude settled at $58.47 a barrel, up $1.89. Brent settled at $57.76 a barrel, up $1.54.
The new records are for nearest-month futures, which are July delivery for U.S. crude and August delivery for Brent. U.S. December crude futures hit a record of $60.40 a barrel, the all-time high for any monthly contract.
Worries about security of supply were highlighted by the closure in Nigeria of the U.S., German and British consulates in Lagos, after a warning of a terrorist threat.
Nigeria is the world’s eighth-largest crude exporter and the fifth-biggest exporter oil to the United States. Its exports to the United States have risen to 1.1 million barrels per day in the most recent government statistics — about 10 percent of U.S. crude imports.
2-15-2006
China’s appetite for African oil grows
African governments view China as a more cooperative partner than the West.
NEW YORK (FORTUNE) – China, the world’s second-largest energy consumer, now imports about 28 percent of its oil and gas from sub-Saharan Africa, compared with about 15 percent for the U.S.
In the past few years, China’s leading energy companies — Sinopec, China National Petroleum Corp., and CNOOC — have inked oil contracts from Equatorial Guinea to Algeria to Angola. Chinese President Hu Jintao’s African trips have included pocket-sized Gabon, whose 1.4 million people could fit into a corner of Shanghai but which has more than two billion barrels of oil reserves. When China’s Foreign Minister, Li Zhaoxing, toured the region in January, he spent several days in Nigeria.
In the heated race to tap a continent’s oil resources, China is making headway in countries like Nigeria, where others often fear to tread. (Full story)
“We haven’t been totally invaded by China yet, but it will come,” says Iheanyi Ohiaeri, head of business development for Nigeria’s National Petroleum Corp. “I get calls and e-mails daily from Beijing, from people looking to buy oil.”
April 12th, 2006
Oil rises above $69 on Iran tension:
Oil climbed above $69 today with London Brent crude hitting a new record high, ahead of US data expected to show falling gasoline stocks and uncertain supplies from major exporters (nuclear) Iran, Nigeria and Iraq.
“Falling stocks coupled with greater and greater focus on geopolitics is keeping the oil price afloat at these high levels,” said Andrew Harrington, resources analyst at ANZ.
“We’ve moved beyond and above the levels where fundamentals count as much as what happens in Iran or Nigeria,” he said.
China’s envoy to the UN urged a diplomatic solution to the standoff yesterday, and said military and economic measures would be counter-productive. (I wonder if that move would be as counter-productive as Red China selling Iran various types of weapons?)
April 17th, 2006, due to problems in Nigeria and the growing Iranian terrorist threat, oil is over $70 a barrel! Once the war with Iran and Syria breaks out expect a crude oil to double in price since the war will be directly in the center of the Persian Gulf’s oil shipping lanes.
In the metals market the most-active June-2006 gold contract hit a contract high of $619.30 an ounce on the New York Mercantile Exchange, its strongest level since December 1980. June gold settled up $18.70 at $618.80 an ounce.
May silver peaked at $13.38 an ounce, the metal’s strongest level since 1983. It settled up 51 cents at $13.365 an ounce.
“There are increased geopolitical tensions, mainly from Iran,” said Peter Grandich, a gold analyst and publisher of the Grandich Letter. “Also, the topping of the U.S. dollar is now evident.”
The dollar tumbled after reports that China could reduce its buying of U.S. Treasury products. There was also speculation that the Federal Reserve may finish its rate-increase cycle sooner than expected.
COPPER prices on the London Metal Exchange (LME) surged to new highs as investors squared positions ahead of the Easter holiday. Three-month copper pushed to a fresh record of US $6,145 per metric tonne!
Zinc prices closed US $4.50 lower at US $3,000 per tonne, shy of a fresh record of US $3,015 per tonne seen earlier.
Nickel prices are trading 55 per cent higher than at their low point early November, currently at their highest since 1989, according to SG Commodities.
Inflation is here and is about to worsen on a global level as commodity prices go through the roof.
China’s first strategic oil reserve begins operation
By Dai Yan (chinadaily.com.cn)
Updated: 2007-02-01
The Zhenhai reserve base, China’s first strategic oil reserve base, began operation on January 29 as oil started filling up its tanks, according to Zhu Hongren, a National Development and Reform Commission official.
The reserve, located in Ningbo, East China’s Zhejiang Province, has a capacity of 5.2 million cubic meters. About 3.7 billion yuan (US$462 million) has been invested in the reserve.
China approved construction of four national strategic oil reserve bases in 2004.
China’s oil production, imports increase during 2007
Eric Watkins
Senior Correspondent
LOS ANGELES, October 12th, 2007 — This year China has imported 18.1% more oil during January-August than it did in the comparable period last year, according to figures published by the country’s General Administration of Customs (GAC).
GAC said China’s total oil imports were 110.4 million tonnes in the first 8 months of this year; however, it exported 2.18 million tonnes, resulting in net imports of 108.22 million tonnes. Over the same period last year it imported 91.65 million tonnes of oil.
GAC also said domestic production of crude oil reached 124.7 million tonnes in the 8-month period, up 1.3% over last year.
China imported 24.28 million tonnes of oil products during the same period this year, GAC said. It produced domestically 129.08 million tonnes: 39.9 million tonnes of gasoline, up 8.8%; 7.68 million tonnes of kerosene, up 17.5%; and 81.5 million tonnes of diesel oil, up 6.3%.
ALSO:
Light, sweet crude for November-2007 delivery fell 12 cents to $83.57 a barrel in Asian electronic trading on the New York Mercantile Exchange, midmorning in Singapore. The contract rose 61 cents to settle at a record $83.69 a barrel on Friday after rising as high as $84.05, also a record.
Brent crude futures fell 34 cents to $80.21 a barrel on the ICE futures exchange in London.
Oil tops $91 a barrel!
By Fayen Wong
SYDNEY (Reuters) – Oil prices extended gains to a new all-time high of $91.10 a barrel in early electronic trade on Friday, bolstered by supply concerns during the northern Hemisphere winter and growing political tensions in Middle East.
NYMEX crude for December delivery, which rose to a record high of $91.10 barrel, was up 31 cents at $90.77 by 0001 GMT. U.S. crude settled up $3.36 to $90.46 a barrel on Thursday after striking a record $90.60.
London Brent crude also hit a new record high of $88.01 a barrel.
“The rebound in oil prices has been remarkable. With all the bullish news flow in the market, I think there is potential for oil to rise further for the rest of the day and in the near term,” said David Moore, an analyst at the Commonwealth Bank of Australia.
Oil, which was falling at the start of the week on concerns about the strength U.S. economy, has gained over $6 since Wednesday, after government data revealed a larger-than-expected 5.3-million-barrel drawdown in U.S. crude inventories.
The sharp fall in crude stocks, combined with fresh signs that oil cartel OPEC will shrug off calls for additional oil from big consumer nations, have exacerbated fears of a possible supply crunch in the coming winter.
I agree