Oil Price Spike: King Fahd, Hummers, and Horrific Explosions

Sean Brodrick discusses the cause of the recent one-day dollar-a-barrel Oil Price Spike — and that it’s wrong to say it’s due solely to the death of Saudi Arabia’s King Fahd.

Oil Price Spike: Ramping up China’s Energy Demand

And then there’s China.

Oh, I know, I know. You all think I’m obsessed with China. You think China couldn’t possibly ramp up its energy demand the way I’ve been talking about, don’t you? Well, let’s look at some facts…

  • Now that the U.S. has almost filled its Strategic Petroleum Reserve, oil bears have been collaring people and telling them that this will take oil demand off the market. Problem is, China is starting a strategic petroleum reserve of its own — 101 million barrels, or just 20 days’ worth of present consumption, but it’s a start. China’s first set of SPR tanks are completed, and it’s going to start filling them, according to the Oil & Gas Journal. So choke on that, oil bears!
  • Meanwhile, China is adding new refinery capacity by the ton! New refinery capacity will be some 634,000 bpd (barrels per day) this year…
  • If you add those new refinery production figures for 2005 — to the amount China will be sucking off the market to fill its SPR — you get about 700,000 bpd. Add that to growing U.S. demand, and you get an additional 1.2 million bpd of oil sucked off the market by the end of the year
  • But here’s the funny thing — total global demand growth is expected to be just 1.3 million bpd by the end of the year. Hmm…I think we should send handwritten notes to all those people in France, Germany, and Spain who must be agreeing to give up driving their cars. And all those people in India who were going to buy new cars? Sorry, you’re walking. I mean, how else could there be no other demand growth anywhere else in the world?
  • Unless, of course – the International Energy Agency is wrong about its forecast for global energy growth! Wrong, wrong, wrong, I tell you. Those guys couldn’t forecast the candles on their own birthday cakes, for God’s sakes!
  • Oh, and India plans its own SPR. Did you know that? It hopes to stockpile 45 days’ worth of consumption by the end of 2006.

And now for the final piece. Want to see something really scary?

You know you want to…


What this is a picture of is $65 oil in the near term and probably $80 oil longer term. Momentum, as measured by MACD, is turning up just as crude oil prepares to make an assault on recent highs.

I’d say that’s scary, at least if you’re driving a HUMMER or Expedition or some other gas guzzler.

And if oil pulls back a bit before making another assault on those highs, I’d consider that a buying opportunity.

See you at $65.

Sean Brodrick
Editorial Director
Sovereign Society
August 3, 2005

The Daily Reckoning