This is from Barron's online [$], a reprint of a Banc of America piece:
Banc of America Securities
40 West 57th Street
New York, New York 10019
(Tel) (646) 313-8791
MARCH 11 – We believe higher world oil prices will loom large over the financial markets for some time to come, an assumption primarily underpinned by Asia's growing thirst for oil.
Simply put, in a region that is home to more than half the world's population, on the cusp of an automobile revolution, at the threshold of a boom in urbanization, and at the forefront of global manufacturing, Asia's energy resources are grossly inadequate.
In terms of proven oil reserves, Asia's reserves equate to a drop in the bucket. Indeed, the region's share of global reserves was just 4.2% in 2003, the last year of available data, down from 5.1% in 1993. Currently, Asia has reserves equivalent to just 16.6 years of current production rates.
In terms of reserves to annual consumption, the picture is worse: China and India together have approximately 10 years of remaining oil reserves based on consumption levels in 2003. That's not a comforting thought considering the secular industrial rise of Asia's twin giants.
However, in terms of oil production, Asia's annual output is significant. Indeed, the region's production in 2003 outstripped that of the United States as well as the combined oil output of South America.
China, moreover, is the largest oil producer in the region, accounting for 43% of Asia's total production in 2003. That said, however, Asia's overall oil production fell 1% in 2003, with sharp declines reported in Australia and Indonesia. That helped drag Asia's global share of world oil production down to 10.2% in 2003 from 10.7% the year before.
Juxtaposed against falling oil production in Asia is surging regional demand.
The region's thirst for energy has climbed steadily over the past decade, rising from 15.9 million barrels per day in 1993 to more than 22.6 million barrels per day in 2003.
In the process, Asia's share of global oil consumption has jumped from 24% of the total in 1993 to 28.8% a decade later. During the same period, China's share of world oil consumption has doubled, from 4% of the global total to over 8% as of 2003.
In the end, the imbalance lies with Asia's soaring demand for oil on the one hand, and declining regional production on the other. This disparity represents another side of Asia's economic rise and continued integration into the global economy that bears watching.
As millions of people in the region move from the farm to the city, become integrated into the global economy, and find the wherewithal to purchase an automobile and/or travel by airplane, the strain on the global supply of oil should only increase. Asia's oil gap should then only grow wider, placing more upward pressure on global energy prices.
The upshot: until the global supply of oil catches up with Asia's soaring demand, $50 per barrel oil may well remain the rule, rather than the exception.
Stay long the energy sector.
--Joseph Quinlan, chief market strategist