I don’t know about you, but I’m beginning to think that China thinks it needs to secure a lot of oil reserves and that now is a good time to do it.
Actually, I’ve thought that for a while. I wrote a while back about the fact that we (as investors) need to listen to the message that China is sending, that message being that there is a supply / demand imbalance coming in the oil markets:
And it isn’t just China, India is going to be a big factor in creating this supply / demand imbalance:
Today China announced one of its largest oil acquisitions to date as China Petrochemical Corp (Sinopec) has invested $7.1 billion for 40% of Repsol SA’s Brazilian assets.
The biggest oil takeover by a Chinese firm to date has been Sinopec Group's $7.2 billion acquisition in 2009 of Addax Petroleum Corp., based in Switzerland, only slightly more than the venture announced Friday.
The deal involves Repsol’s holdings in the subsalt area offshore Brazil. The subsalt play is exceptionally expensive because the oil is found in water depths of more than 2,000 meters and several thousand meters further under the sea bed below layers of sand, rocks and salt.
Friday's deal is the latest significant international energy transaction involving Chinese players. In June, the International Energy Agency said that overseas investments by China's national oil companies in 2010 look as if they will outpace by far the $18.2 billion spent in 2009, and that was before the Repsol-Sinopec announcement. From January 2009 to April 2010 alone, the three majors--China National Petroleum Corp., Sinopec and Cnooc--spent around $29 billion worldwide to acquire oil and gas assets according to the IEA.
Brazilian state oil company Petroleo Brasileiro SA (PBR), or Petrobras, also agreed to a $10 billion loan from China Development Bank last May in exchange for crude-oil supply to Sinopec over 10 years. Petrobras also gave Sinopec rights to explore two deep-water blocks in Brazil for oil and natural gas.
I remember clearly from 2005 to 2007 as various educated individuals sounded warnings of an enormous debt induced housing price bubble that would end badly. Very few people paid attention. There are similar warnings being sent out about the pending mismatch between daily world oil production and daily world oil demand. And I think all it takes is a few hours of reading the actual statistics that are being presented to clearly understand the oil crunch the world is facing. So do yourself a favor and make sure you do some reading on oil production and oil demand.
I’ve added a few attractively priced energy stocks to my portfolio. And if they are attractive at $70 oil you can imagine that they are only going to be worth more as oil prices rise.
ATP Oil and Gas