Saturday, March 5, 2011

China, India Bidding Up Price Of Crude To Build Reserves

To build up a strategic cushion of petroleum reserves, the world's two most populous nations need to buy a minimum of 200,000 extra barrels per day, something that will consume about 1.1% of world exports.

The world is experiencing a loss of 5% of exports from Libyan assets that are expected to be offline for an indefinite period.

Analysts say the Chinese and Indian need for petroleum reserves will drive prices well above the $100 levels of the present.

China is looking to put 500 million barrels in salt domes by 2020, a figure that is equal to 3 months of imports. With 102 million barrels already in storage, that means they will be buying 168 million barrels starting this year. Similarly, India has 9.8 million barrels in storage and will increase its reserve by 40 million barrels – 80,000 barrels purchased per day.

This compares to a 726.5 million barrel American strategic reserve built up since the oil crises of the seventies, which cost the U.S. taxpayers something like $20 billion. At today's prices, the American strategic investment would amount to $70 billion.

Over the past weeks of mideast unrest in Egypt, Libya, Bahrain, Yemen and Algeria, such petroleum outfits as the Canadian oil sand producer Suncor Energy have outperformed gold futures by about 30%.

State-owned petroleum producers Aramco, Pemex and the Venezuelan national oil company PVDSA are responding to increased demand and private outfits are following suit, riding the crest of the tide in black gold.

Investors will experience windfall profits trading in barrels of petroleum for future delivery.

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