Rapid expansion in China and India has led the governments of these countries to make sweeping changes in the way they buy oil. In many cases, they are beginning to circumvent the traditional distribution networks of the New York Mercantile Exchange (NYMEX), and other bourses, entirely.
In fact, according to a report released Wednesday by Investment University, they’re undermining them, “locking up” supplies by purchasing crude from oil-producing countries directly – behind closed doors. And the deals last years, often taking large oil reserves off the market for a decade or more.
The following are recent agreements in what is becoming known as “Energy Mercantilism”:
— Angola committed to supply China with 200,000 barrels of crude per
day at $60/barrel for the next 10 years, in return for Chinese
investment in infrastructure projects such as railroads, roads and
bridges.
— Sinopec, China’s state-owned oil giant, signed a $70 billion deal
with Iran in November 2004 to develop the Yadavaran oil field.
Sinopec will also buy 250 million tons of liquefied natural gas over
30 years. Iran is committed to export 150,000 barrels of crude per
day to China for the next 25 years.
— China National Petroleum Corp. has entered joint development
agreements with Sudan, which is expected to produce as much as
300,000 barrels per day. And Sinopec is erecting a pipeline from that
complex to Port Sudan on the Red Sea, where the Chinese are building
a tanker terminal for shipping raw crude to the Chinese mainland.
Altogether, Sudan provides 10% of Chinese petroleum imports.
In short, more and more oil buyers and sellers are hooking up directly, outside of the marketplace. And they’re including other “payments” into the transactions – direct investment, trade agreements and infrastructure development.
The free markets that have historically determined the pricing and allocation of oil, according to the report, suddenly face a major uncertainty: “Now that oil prices are being locked in outside of the marketplace, not everyone will pay the same price, fundamentally altering the dynamics of the energy marketplace.”
Read the full report from Investment U.
www.investmentu.com/research/crude-oil-forecast.html
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Website: www.investmentu.com/research/crude-oil-forecast.html
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