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Position: Short Oil via the etf USO

 

A couple of quick call outs this morning from the global oil chess board.  We discussed some of the regional dynamics in our recent Oil Black Book (please email for a copy if it is part of your subscription or if you would like a copy) and are seeing these points highlighted this morning.

The Russians announced their September oil production this morning, which exceed 10MM barrels per day.  Interestingly, this is almost 25% more than its nearest rival Saudi Arabia and is a monthly record for Russian monthly oil production.  Obviously, with such a share of the global oil market, the Ruskies are incentivized by high prices. To wit, Russian President Dmitry Medvedev noted on Thursday that, “$80 to $90 per barrel would be a fair price for oil in the current economic environment.” Indeed.

The juxtaposition with Russia is, of course, China.  Below we have a chart that shows Chinese oil production versus Chinese oil consumption going back to 2000.  This quick and dirty analysis shows the % by which consumption exceeds production.  Back in 2000 consumption exceed production by some 50%, as of the most recent data this number is now above 100%.  Because of her dramatic growth in oil consumption over the last decade, China has become increasingly dependent on foreign sources of oil.

Do you think Chinese needs and Russia’s supplies are going to shape the relationship between these two powers? You bet your Madoff they are!

Daryl G. Jones

Managing Director

The Global Oil Chess Board - a1