by Phil Flynn The Energy Report for Tuesday, September 13, 2005 Are high energy prices changing your buying habits? Join the club because you're sure not alone. In the past China has threatened to buy up every barrel of oil it could find. They're now balking at the high price they have to pay. And China now says they won't build their own Strategic Petroleum Reserve until prices come down. This attitude is still just as foolish as when Candidate John Kerry said he'd cease to continue to build our SPR because oil at $30.00 per barrel was just too high!
China still plans on building a petroleum reserve but maybe they won't pay cash for it after all. And maybe it won't be as big or even bigger than the US reserve. And they really can't decide just how much they should reserve. Bloomberg News reported that China is saying they will complete a project in 3 years that will bring their reserve to 30 days of typical consumption. China is now faltering a little on the time frame and the amount. This has traders wondering about their ultimate plan but we know that whatever it is, it will stress supplies and put upward pressure on prices. This is assuming they won't wait for $30.00 per barrel to start a reserve. It will be a very long wait if they do.
China's oil demand growth fell in August but their exports still grew by 3.4%. This tells us that their oil demand growth will rebound in the coming months. Is another revaluation of the Yuan coming? The last one worked like a dream.
High oil prices might finally be accomplishing the near impossible. It appears it might have inspired oil investment. The Financial Times reports today that the world's biggest oil producers have significantly boosted investment in exploration for the first time in nearly two decades. OPEC has drilled 7.5% more wells than in 2003 and their rigs in operation rose 18.8%. The entire Middle East has 248 rigs operating and that's 100 more than the average throughout the 1990's. Now it's time for big oil to step up and start spending some of those big profits they've been making.
The heat is on. On Europe's politicians that is. High fuel costs are inspiring truckers to threaten massive strikes and politicians are springing to action. Bloomberg News reports the UK will call on the world's richest nations to stabilize oil prices. They have a 5 point plan aimed at cutting market volatility and some of these ideas are nearly divinely inspired and makes us wish we'd thought of them. Take the first example for instance. They want producers to boost output! Genius! Why didn't we think of this?! And we should all be more transparent about our oil reserves. How about more investment in production facilities. We need a new look at energy sources and a clamp down on wage growth. Guess they want to ensure the workers won't be able to afford to drive. Makes sense. Well, these are some wonderful ideas we guess. But the best idea has just never occurred to the UK or France. How about cutting the huge amount of tax charged on a liter of gas?! But no. Then France couldn't afford to give their rubbish collectors "free" parking and theater tickets. We all have our priorities.
Sky high taxes in Europe discourage economic growth and if even half the tax was stripped away, gas prices still aren't that high. This is evidenced by the fact that for the first time in two decades there is investment in the oil business. Why didn't big oil expand sooner? The price of oil was too low to make it worthwhile for big oil to take big risk. Demand for oil was being stifled for a very long time due to exorbitantly high taxes. So as China's demand for oil grows along with their economy, Europe's economy falls. They tried to discourage use of oil with oppressive taxes and it halted investment in the oil industry where there's been no expansion. High taxes helped in the short run and is killing them in the long run.
Celebrate good times! The Loop is open and product is once again flowing. Product prices fell yesterday in the face of this good news. You can celebrate when you open your account with me and enjoy a free trial to Alaron Energies. Call me at 800-935-6487 and ask for Phil Flynn.
We're long oct crude from apprx 6400 - stop 6250.
Stopped on long oct heating oil from apprx 18700 at apprx 18500. Buy oct heating oil at 17700 - stop 17500.
We're long oct unleaded from apprx 18900 - stop 18400.
We're long oct natural gas from apprx 1080 - stop 1000.
