Wednesday, February 9, 2011
I just crunched the numbers. The news is bad...
Seven of the world's top 10 oil-exporting regions exported less oil in 2009 than they did in 2005. Yes, I know 2009 wasn't a great year for oil demand... But 2008 was the best year ever for oil prices – and exports were down in eight of the top 10 regions.
The head of Saudi Aramco, Saudi Arabia's state oil company, told the world that it will need to cut exports by 3 million barrels per day by 2028. More oil will be needed at home. That's about 4.6% of world production outside of China and the U.S.
Why did I leave out the production in China and the U.S.? Because that oil will never, ever make it to the world export market. And that's a big part of the problem. The U.S. and China import 21% of the world's oil production. In other words, more than one in five barrels produced anywhere else in the world goes to a port in either the U.S. or China.
Over the last decade, U.S. oil imports declined a bit. But China's demand for foreign oil rose 297%. Even with that massive increase, we still consume nearly twice the imported oil they do. And when you look at the per-capita oil consumption, there's even more room for growth...
The U.S. lives an energy-intensive lifestyle. If folks in Minnesota want fresh lettuce in January... no problem. Florida grows it and ships it on up. If folks in California want to rent a house on the beach in North Carolina this summer... no worries. Just hop on a plane and head over.
According to Thompson-Reuters, we use 16.5 barrels of oil per person per year. That's incredibly rich, compared to the rest of the world. Take China... Today, they consume just 2.6 barrels per person per day.
China's per-capita oil consumption doubled from 2001 to 2009. I'll bet you with growing car ownership and other Western-style habits, the next double in consumption happens a lot faster. But here's the problem... There are 1.3 billion souls in the country.
For the Chinese people to reach just five barrels per person per day, they'd need to import another 8.9 million barrels per day. That's like adding an import volume equal to all the oil imported into the U.S. It would increase China's oil import demand to 20% of the world's oil production.
In other words, for China's per capita oil consumption to reach 30% of yours and mine, they need an enormous amount of oil. Demand is coming. Supply is getting crunched.
Don't underestimate this story. The only way you can protect yourself from China's growth is to own oil insurance. Buy it anytime it's cheap... You won't regret it.
"It's like insurance against rising oil prices down the road," Matt wrote. Learn more about his "oil insurance" plan here: A High-Income Bet on Rising Energy Prices.
And for a way to play "oil insurance," be sure to read Matt's essay from last month. Shares of this company and its Canadian colleagues "will go much higher if oil prices break $100 per barrel," he wrote. Find out Matt's favorite idea here: It's Not Too Late to Buy Oil Insurance.