Peak Oil Passnotes: China Has Spoken
By Edward Tapamor
22 Feb 2008 at 02:00 PM GMT-05:00
PARIS (ResourceInvestor.com) -- The market has spoken. For once the machinations of the market are being based not on herd mentality, software, technicals or the whims of the mass media. Instead the worrying thing is the moves to $100 oil are based on reality, demand. Chinese demand.
It has not mattered a jot to China as oil has risen in price. Some people might want to buy a house because they think they may make money, other people buy a house because they love someone and they want to live in the city without renting. China is the latter. China is not interested in a few billion dollars this way or that every month, it wants to live in the city called 21st century prosperity and it is going to do everything in its power to stay there. And it ain’t gonna rent.
If Chinese demand were going to slacken off it would have happened by now. But nothing of the sort is going on. Although, as we have said before here, the figures that come out of Beijing can be slightly odd, it appears Chinese demand is rising somewhere around 10 per cent per year at the moment.
The subsidies that people like Rex Tillerson of ExxonMobil hate so much are really nothing but an oily straw man. He claims the subsidies of the Chinese authorities are distorting the market, but in fact that may well be the opposite. Every time the price dips all this does is allow China to consume even more.
When the price of crude fell, after its first foray into $100 territory, it reached around $86 per barrel. Far higher than this column predicted, when we were talking about it falling to the high sixty dollar range. There it stuck for a while as the market started sending more and more crude over the seas…to China.
Of course in the meantime other things are going on. The argument between ExxonMobil [NYSE:XOM] and Hugo Chavez, president of Venezuela, is adding a small premium. But the markets really are not scared of Chavez. He has to send his heavy oil to the U.S. to be processed and he also is not the arch nationaliser a lot of the media think he is.
If Chavez were really a die hard old fashioned communist he would have taken everything for the state. But instead he has created ‘mixed companies’ that are still including most of the major oil companies, Total [NYSE:TOT], BP [NYSE:BP; LSE:BP], StatoilHydro [NYSE:STO] and so on.
In the same way that the Norwegians did some very Scandinavian resource nationalism by gently combining their two major energy companies, Statoil and Norsk Hydro, Chavez is doing a similar thing, just les politely. No doubt his row with ExxonMobil will continue for some while – the U.S. giant is notorious for demanding contract sanctity - but eventually there will be a settlement and the spat will be forgotten.
Time will tell how clever ExxonMobil’s stance has been, after all what they really want is their technology back, and that is too late. What is more interesting about the spat is the lack of effect it is having on the market compared to good old fashioned demand.
In a few months Saudi Arabia is going to be bringing on stream its new field Kurisayah that will hit peak production by the end of the year of around 500,000 barrels per day. When that happens if oil is still sitting in the $90 range or higher, we will know all bets are off. If China can continue to suck up all available oil at that price, then everything could change…. |
