Oil Competition: Less Subtle Signals…
Posted November 25, 2009 at 4:37 am 
Filed in: Demand for oil resources is rising. By 2030, the International Energy Agency (IEA) expects that world demand for petroleum will increase by 21.2 million barrels per day, or roughly 25 percent compared to 2007 levels. Of this growth, fully 100 percent is forecast to occur in the developing world, with 63 percent expected in China and India alone.
This geographic concentration of demand growth is not being missed by producing nations. Russia, wisely planning ahead, will sell its first tanker of Siberian oil from a new Pacific port next month. Rosneft, the state-owned oil producer, will sell 100,000 metric tons of crude oil from the port of Kozmino to China and the Pacific. This will provide another source of revenue growth for Russian oil production. Prices, of course, have doubled since February and have been hovering around $80 per barrel for the last month.
Always cognizant of global geopolitics, one trading source outlined other important implications of the project beyond simply its ability to provide revenue growth to Russia. “One aim will be to tell Europe – we can sell our energy to Asia, so be careful when not supporting our new pipelines,” said the source. The source then added that, “the other goal would be to show China that the Asian pipeline is now ready. Both branches of it. So if there are problems in supplies to China there is always the option to divert oil to the Pacific.”
Explaining how the option of playing off different nations against each other exists in their demand for resources is nothing new, but it is interesting to have it so explicitly stated. This does not suggest any Russian malice or anger. Rather it merely shows just how much influence producers have and just how dependence on the part of consuming countries can leave them, to some extent, at the whim of their supplier, especially when they are competing with other consuming nations for the same resources. In times of high demand this dilemma gets worse—by mid-2008 for example, spare production capacity dwindled to 1 million barrels per day, only slightly more than 1 percent of daily demand. This helped drive prices up to historic highs and inflicted severe economic damage on importing nations. Being reliant on potentially unstable supplies or even unfriendly nations over the long term is unsustainable. We must move off this path.
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