Im buried monitoring the energy markets scrutinizing them virtually 24/7 checking every piece of news I can get my hands on.
I also have three oil charts on my trading screen: A monthly chart, a daily chart, and a 60-minute chart to check the very short-term moves.
Thats because theres a lot going on in energy. Theres Iran Iraq North Korea. Plus, here in the U.S., second-quarter earnings for oil and gas companies are now starting to stream out. I think theyre going to smash all previous records.
All of these forces have to be monitored closely. Miss a development no matter how small it may seem and it can cost you big time.
So in todays issue of Money & Markets, Im going to give you an important excerpt from my Real Wealth Report thats going to press next week.
Its timely info. I want you to have it. Naturally, I cant give you any specific recommendations to act on. Those are reserved for my paying subscribers.
The Oil Demand Story
In A Nutshell: Asia
For the time being, the developed West is still the biggest oil consumer. However, the most dramatic increase in new demand is being generated in the East.
The massive economic expansion in China and India boosted now by surging development in Vietnam, Thailand, and Indonesia virtually guarantees a built-in escalation of oil demand that will stretch well into the next decade (and likely the one after that, too).
Abdallah Jumah, CEO of Saudi Aramco, the worlds largest producer of crude oil, put it this way:
Without a doubt, developments in Asia have changed the dynamics of oil forever. The center of gravity for energy demand growth is moving eastwards.
The latest numbers confirm that: A June report from the Energy Information Agency (EIA) on the world energy outlook from 2003 to 2030 shows energy consumption in developed OECD countries (mostly mature, stable economies) rising about 27%.
But over the same time period, energy consumption in the emerging economies of
non-OECD countries is expected to more than double, surpassing consumption in industrialized countries shortly after 2010. And in China and India, energy consumption will nearly triple!
I think even these forecasts might prove conservative. Why?
Almost Everyone
Underestimates China
I have to laugh when I hear the Wall Street crowd talk of a slowdown in China. Sure, a race car going 190 miles an hour is slower than one going 220. But either one will blow the doors off your family sedan!
Compared to the easy-cruising economies of the West, Chinas lead-foot acceleration is still very, very fast.
Chinese leaders talk about tapping the brakes a little, but only to keep things from skidding out of control and plunging off course. The Chinese government is shrewd and practical. They have no intention none whatsoever of taking any action that would jeopardize their economic boom.
If theres any slowdown in China, it surely isnt apparent on the street. I just came back last month from a major tour of Asia, and in practically every city I visited, I saw steel forests of construction cranes working on all sorts of projects.
I cant get over how many Americans still cling to the image of a China filled with peasants in Mao-style padded pajama tops wearing coolie hats working in rice paddies. That was the China of a few decades ago its a whole nother country these days.
Consider this: By 2010, China will have 90 times more cars on the road than it had in 1990. Beijings Energy Research Institute predicts that, by 2030, China will have more cars than the United States.
All this construction and all these cars equal huge demand for fuel, which is causing
The Great Chinese Oil Grab
No single country, not even the United States, is big enough to control the oil market by itself. But China is sure making waves by securing oil all over the world.
Chinas oil consumption overtook its oil production in 1993, and the country became a net oil importer for the first time. Now, it imports more than a third of the oil it uses, making it the worlds second largest oil importer.
And Chinas government expects the country will need 600 million tons of crude oil a year by 2020. Thats more than triple its domestic production!
Chinas original plan to fill its oil supply gap: Cozy up to Saddam Hussein. The hope: That Saddam would invite them to develop some of Iraqs more promising oil fields. However, the U.S. invasion of Iraq in 2003 spoiled any possibility of that happening.
China learned a valuable lesson it could no longer rely on one or two oil production areas. So, Chinese envoys fanned out over the globe to secure a diverse base of future oil supplies.
And this massive, aggressive Chinese oil grab constitutes the biggest single new demand factor affecting the market today.
China is building its first ever strategic oil reserves. The country expects to take 100 million barrels off the market by the end of this year.
The country has pursued deals for oil in the Middle East, Eurasia, Russia, Africa, South America, and even North America. Meanwhile
Were Losing Out
And Oil Prices Are
Headed Much Higher
Chinas urgent quest for oil has even brought them right to our doorstep. Last year, China National Offshore Oil Corp. (CNOOC) attempted to buy Unocal. The U.S. revolted against the deal, causing it to fail. That was a grave mistake.
Instead of forming a partnership with China, we pushed them out the door. Now, the Chinese are acquiring oil properties, reserves, rigs, and drillers all over the globe.
Theyve even made headway in places that Americans had long taken for granted Saudi Arabia, Canada, and Venezuela. In short, China is gobbling up almost every last opportunity in the oil markets.
Thats not going to stop or change. It will just pressure oil prices much higher. Is it the only factor? No way. But its unequivocally one of the strongest.
When I add in all the other forces, I see oil hitting $100 this year and heading even higher next year.
While well all be feeling the pain at the pump, theres a golden nugget in all of this: If you understand the energy markets, you can make hundreds of times more than youll ever pay for oil and gas.
If youre a subscriber to my Real Wealth Report, hold all the energy shares Ive recommended and stay tuned for the next full issue.
If youre not yet a subscriber, you can pick up a subscription now for just $99 a year. It will be the best money you ever spent.
Best wishes,
Larry
For more information and archived issues, visit http://www.moneyandmarkets.com
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Colleen Collins, Amber Dakar, Ekaterina Evseeva, Monica Lewman-Garcia, Wendy Montes de Oca, Jennifer Moran, Red Morgan, and Julie Trudeau.
2006 by Weiss Research, Inc. All rights reserved.
15430 Endeavour Drive, Jupiter, FL 33478
