Oil Demand to Increase With Chinese Auto Boom

The oil price keeps going down and we keep wondering what in the world investors are thinking. Below $45, oil’s correction begins to look more like a liquidation and re-allocation of global assets. But until then, are we just being stupid and obtuse in citing the main driver for oil, transportation fuel? Demand for oil as a financial asset is falling, but does that change at all the demand for oil as a fuel to power cars, China, and the future?

We posted some more charts [Heat, Light, Motion, and Oil Demand] [World Energy Investment Requirements] showing the case in black and white. Between now and 2030, the world will have to find a way to produce another 40 million barrels of oil, and that’s on top of the 81 million it produces today. Someone has to find it. Then someone has to produce it. And only then will it end up in a car, stuck somewhere in rush our outside Beijing, D.C., or Sydney.

The demand won’t abate with the falling price. It will increase. Such is the nature of lower prices. And we’ll see just how much real interest there is in electric cars when oil prices fall. Leave it to GM to announce its electric hybrid just as oil prices collapse. We’ll see if the plans are shelved-again- until oil reaches its next crisis.

Don’t expect that crisis to be too long in coming, though. “China surged past Japan to become the world’s number two vehicle market after the United States last year, as car purchases by newly affluent drivers jumped thirty-seven percent, ” reports the Associate Press today. Chinese car sales rose twenty five percent, to 7.2 million units, ahead of Japan at 5.7, but still well off the U.S. pace of 16.5 million units.

Just wait until they get zero percent financing in China. Or just wait until Chevy begins selling a car for a third of what GM can sell it for. China’s economy grew at 10.5% last year, faster than even India’s which, if it’s going to be the next China, will have to do better than 9%.

About the only thing that can stop China is the kind of crisis nobody sees coming in financial markets. You know, the kind that usually pops up when prices rise, politicians get bold, and people get crazy. All we can say is Viva los locos and have a good weekend!

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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