Source: Globe & Mail (Dec 10, 2010)
Author: Jeff Rubin
The strongest manufacturing numbers coming out of the Chinese economy in a seven-month period, coupled with plunging oil inventories in the world’s largest energy consuming economy, have sent oil (CL-FT88.700.420.48%) prices to a 25-month high. With no let-up in China’s fuel demand, the world should be looking at triple-digit oil prices again within a quarter.
That may come as a shock to those who thought the bloated oil inventories that came in the wake of the last recession would provide a buffer against future oil price spikes. Suddenly, that buffer has literally gone up in smoke.
Refined oil stocks held by China’s two largest oil companies have fallen for eight consecutive months, while diesel stocks in the country fell 14 per cent in October. And the tightening oil market won’t just be felt in China. The 140 million barrels of international oil inventories sloshing around in floating storage on the high seas is also all but gone.
With oil prices within striking distance of triple-digit levels, don’t look for any price relief at the upcoming OPEC meeting in Ecuador. Venezuelan energy and oil minister Rafael Ramirez was recently quoted as saying that $100 (U.S.) per barrel was a fair price for both consumers and producers. (But not for cab drivers in Caracas, who will continue to be able to purchase their fuel at 20 cents per gallon, the equivalent of a little over $8 per barrel). Meanwhile, King Abdullah of Saudi Arabia has already served notice that, without triple-digit prices, there is little incentive for new oil exploration in his kingdom.