Chinese lower their intended purchases
Posted by Heading Out on September 14, 2005 - 8:04pm
China, the world's second-largest oil consuming nation, will delay purchases of the fuel for its emergency stockpile because prices soared to records, a government official said.The story is being picked up elsewhere. The Pakistan Daily Times also comments on the speech."I can tell you clearly, we are not going to buy now," Zhang Guobao, vice chairman of the National Reform and Development Commission, China's top economic planning agency, told reporters in Beijing today. The government had planned to start filling the stockpile by the end of this year. . . . . ."We are studying and trying to find other ways to build our oil inventory on a gradual basis," Zhang said. "We have mapped out a plan to build our oil inventories and related facilities are under construction. We are yet to decide."
The decision whether to build a stockpile to cover 90 days of consumption or 120 days hasn't been made, Zhang said. China's oil consumption has more than doubled in a decade to an estimated 6.65 million barrels a day in 2005, according to the International Energy Agency. The proportion met by imports has risen from zero to about 44 percent.
"The basic policy for China's energy industry is to rely on domestic supply," Zhang said. "China is able to maintain production of crude oil at around 180 million tons a year over the next 20 years," or about 3.6 million barrels a day, he said.
China, whose voracious oil import appetite took the world by storm last year, cut its August crude imports by 6.1 percent from the year-ago period to their lowest levels in eight months at 2.06 million barrels per day (bpd), as refiners reduced purchases amid heavy losses on domestic sales, customs data showed. Undermining prices further, the world’s No. 2 oil consumer reiterated on Tuesday it would not use imported crude to fill newly constructed strategic reserves. “Currently the international oil prices are at high levels. Against this backdrop, we would face big risks if we buy oil from the international market,” said Zhang Guobao, vice director of the National Development and Reform Commission.Of course some of the oil reduction may also have been brought about by the problems that they have had in the South due to the weather, and the increasing amounts of power becoming available from their electric grid, since it will lower the need for generators. On the other hand it may also have an impact on those companies that have been supplying the voracious U.S. appetite for goods, with all the implications that may bring. Technorati Tags: peak oil, oil,
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Unfortunately for the Chinese, the analysis is complicated by the fact that their actions will be significant enough to influence the oil price; if they don't buy the oil price may fall but as soon as they start buying, the price may rise. Nevertheless, I doubt that the change would be large enough to change my above recommendation.
Xinhua article
Hearing that the US Red Cross co-ordinated with Homeland Security, even tho Homeland Security drug it's feet also isn't really a surprise.
I'm sure that there probably is an association which would be better at giving Aid, but if you're looking at large associations (so one doesn't have to spend a lot of time trying to find someone to give the money to) the Red Cross seems to be far better than the other alternatives. Well, at least the one alternative that I know being the United Way. They seem to have a history of lots of embezzlement and higher administrative costs (not counting disappearing funds).
The generic war chest is a good thing, because that way the big emergencies which get people to potentially over-give help cover the smaller emergencies which don't make the paper.
McElveen-Hunter was appointed by Bush in June 2004. Her Red Cross bio says she is the "former U.S. Ambassador to Finland (2001-2003) and the CEO and owner of Pace Communications, Inc., the largest private custom publishing company in the United States. The company's clients include such Fortune 500 companies as United Airlines, Delta Air Lines, AT&T, Carlson Hotels, and Toyota."
McElveen-Hunter donated more than $130,000 to the Republican Party since 2000, RAW STORY has found. Her largest donations were $25,000 to the Republican National Committee in April 2004 and $100,000 in July 2000. In May 2000, she gave $1000 to "Bush for President, Inc."
Marsha J. Evans, President and Chief Executive Officer of the Red Cross, is a Rear Admiral in the Navy and the Director of Lehman Brothers Holdings, Inc., a global investment bank serving the financial needs of corporations, institutions, governments and high-net-worth investors worldwide, according to the corporation's web site. Evans also sits on the boards of the May Department Stores Company and Weight Watchers International and was recently elected to the board of the Huntsman Corporation, a large chemical and plastics manufacturer. She is also a presidential appointee to the Board of Visitors of the U.S. Military Academy.
ARC only gave to victims $10 Million of the $50 Million it collected for the 1989 Loma Prieta earthquake. According to one researcher, critics also protested holdbacks following the Oklahoma City bombing in 1995, Red River flooding in 1997 and a San Diego fire in 2001. After 9/11 the ARC held back more than half of the net $543 Million it had raised. Putting that money in a Liberty Fund, doesn't make me or the victims feel any better.
While courts have considered the Red Cross a "government instrumentality" immune from state taxation, they have not viewed it as such for purposes of religious discrimination or Freedom of Information Act claims. In other words, the Red Cross obtains the tax benefits of being a "government instrumentality," but is exempt from the obligations that government carries.
One federal court noted that, "Close cooperation with government is essential to the work of the Red Cross. A perception that the organization is independent and neutral is equally vital."
The Supreme Court has found that "time and time again, both the President and the Congress have recognized and acted in reliance upon the Red Cross' status virtually as an arm of the Government."
Since just 6 years ago, prices were around $20, I'd say that the market may slip further - at least to $50, if not $40.
On a more serious and less snarky note, this Chinese reaction to market prices should have been easily predicted. A lot of people talk about how the demand for oil is price inelastic in the short run, which it certainly is. But that's true only within the context of a particular infrastructure, like that of the US, where so much of our oil consumption (i.e. motor fuel) is almost impossible to replace on short notice.
By comparison, China, which does not have a massive infrastructure built up over decades of reliance on and exploitation of cheap oil, can more easily cut back on oil consumption. That whole centralized, authoritarian government thing doesn't hurt, either. (And no, that's not a negative comment about Democracy, just an honest observation that their government organization can impose its will on the people with ease.)
"China's car industry grew 16 percent year on year in August, with car production soaring 46.3 percent, according to statistics released by the National Bureau of Statistics (NBS) Wednesday.
According to a monthly NBS report, the industrial value added of the industrial sector, covering all state-owned enterprises and non-state enterprises, each with annual sales of over 5 million yuan, reached 596.8 billion yuan (73.7 billion US dollars) in August."
"For the January-August period, the industrial sector posted a growth of 16.3 percent, with the industrial added value reaching 4,411.5 billion yuan."
There is no way to sustain that kind of growth without eventually coming back to the oil import market full scale, or alternatively buying production abroad (witness the chinese purchase of Encana's Ecuador assets yesterday).
Is there a metaphor contest? I would nominate this one -- very amusing.
I am surprised that Rubin does not mention the obvious reason. The Chinese subsidize energy prices which means that retail prices do not immediately respond to the world oil price.
From the San Francisco Chronicle, 11 September: "In a muscular display of its rising military and economic might, China deployed a fleet of five warships on Friday near a gas field in the East China Sea, a potentially resource-rich area that is disputed by China and Japan.
The ships, including a guided-missile destroyer, were spotted by a Japanese military patrol plane near the Chunxiao gas field, according to Japan's Maritime Self-Defense Forces. It is believed to be the first time that Chinese warships have been seen in that area.
Although the fleet's mission was unclear, the timing suggested that it was no coincidence. The warships appeared two days before a general election in Japan, whose results could greatly influence relations between Asia's two great powers, and weeks before China is scheduled to start producing gas in the area, despite strong Japanese protests."
The Chinese hold over $700 billion in US Treasury bills. They can buy anything they want. They are simply holding off until it's a bit more opportune. I wouldn't fill my SPR in the aftermath of Katrina, either. Would you?
You're misinterpreting the statement (and it seems you're not alone). They are planning to rely on domestic production in lieu of drawing down the SPR in the event of supply disruption.
That is to say, the cost to fill the SPR at current prices exceeds the risk-adjusted value of a full SPR, in light of domestic production capacity currently in place.