China’s Oil Grab

You work long enough on Wall Street, you meet interesting people. Some are charming, some colorful, some sardonic, some brilliant. 

I was fortunate enough to befriend someone who is a combination of all four. And, this person — call her the Penobscot Princess — is publicity-averse (shy), so I know their kind words aren’t merely a ruse to pick up some media coverage.

The bad news is this person’s brilliance is only seen by a handful of high-spending Buy-side funds. The good news is I’m on the short list.

Lucky for you, too. Here’s PP’s comment’s on China’s Oil Grab:

"First things first. I am sittin’ here and it’s a little
after 3 a.m. I just read about Chavez wanting to cut the US off from Venezuelan
oil and his intentions to sell to others instead. China was mentioned. Right
behind that, I read another article about China having lent $6 bil to Rosneft
in what amounts to, IMHO, a forward contract for oil purchases.

China: We gotta’ follow this story carefully. As
mentioned above, they lent state-owned Rosneft $6 bil when they “bought” Yukos’
biggest-producing unit, Yugansk. The implication here, then, is that oil is the
collateral. Thus, the Chinese in effect have bought forward, eh? Okay. Reuters
reports today that “western banks have
called in a $540 mil loan secured on the assets of Russian
oil major Yukos’s former key unit Yugansk… The guarantees mean oil receivables
of Yugansk, which pumps a million bbls of crude a day, can’t be used by Rosneft
as collateral until creditors are paid off…”

Starting to feel like you’re
reading a Russian novel? Me, too. “Dr. Zhivago” is gonna’ read like “Little
House on the Prairie” in comparison to this saga by the time the banks and the other
conspirators get finished with this shootin’ match. But what is so disconcerting
is that here we have China again, lookin’ to glom world resources. Here’s a
blurb from our 1/14/05 missive which refers to a November ’04 trip made by the
Chinese Prez: … “Hu also signed five letters of intent in Argentina. If
successful, they could result in Chinese investments worth $20 bil over the next 10
years. Among those financing programs are an $8 bil plan to expand the
Argentine railway system, $6 bil for low-cost homes and other construction
projects and $5 bil for oil exploration.

… The reality is that almost
overnight, China has gone from a negligible trading partner to Argentina’s fourth largest. (Brazil’s third, by the way.)
Argentine-Chinese trade is up by about 300% over the past 5 years…

“The
upshot? They’re sure gettin’ around town, spreadin’ the green pretty good. Some
times for food. Some times for energy. So don’t look at me when we start
fightin’ over water.

Next case. Look:

Chavez: Intending to spite the US by blowing out their Citgo
refineries here. The implication, I guess, is that they won’t be supplying them
with the sour Crude for which these refineries are configured. The creepy part
is that they are one of our most important sources. But we have known for years
that this Castro wanna-be detests the US, so shame on us for not anticipating
that he would go completely haywire at some point. Well, looks like that point
has arrived. Solution? Start drilling in the Alaskan Wildlife Reserve; let the
caribou get a motel room.

We’ll leave the light on for ya’. Next."

Fascinating stuff . . .

Source:
Penobscot Princess
Morning Comment — Tuesday, February 2, 2005
subscription only electronic distribution

See also
Global: China’s Choice
Stephen Roach (New York)
Morgan Stanley, Feb 11, 2005
http://www.morganstanley.com/GEFdata/digests/20050211-fri.html#anchor0