The dollar is up, and oil is down. But the big trends remain in place. I just finished talking to Charlie Butcher at WOWO in the great state of Texas about oil prices.
Certainly, I think the trend is higher. I’m also ready to be proved wrong. But here’s something to consider.
Citigroup Seeks ‘New Blood’ for Asian Commodity Team
Citigroup Inc. plans to expand its commodity team in Asia at a “double-digit” pace in a bid to capitalize on rising demand for raw materials as the global economic recovery boosts metals and energy prices.
Citigroup joins Societe Generale SA and Barclays Plc in beefing up commodity businesses as copper, oil and sugar have led a 12 percent jump this year in the Reuters/Jefferies CRB Index, which tracks commodity prices. The expansion of commodities trading boosted Citigroup revenues, Doraswamy said.
“In the next two years, it’s going to be a commodities world,” Ellison Chu, metals manager in Hong Hong for Standard Bank Asia Ltd., said today by phone.
Also, Baker Hughes (BHI: 49.87 -0.17 -0.34%) is going to buy BJ Services (BJS: 22.55 -0.09 -0.40%) for $5.5 billion in cash and stock. Baker Hughes is paying a 12% premium to BJ’s price on Friday. Baker Hughes obviously doesn’t think it’s paying top dollar. It believes it’s getting a bargain.
After all, according to BP’s Statistical Review of World Energy 2009, while global oil consumption dropped 0.6% in 2008, oil consumption in China increased 3.3% to nearly 8 million barrels per day. China has four times the population of the United States but consumes less than half the amount of oil. Do you think that ratio is going to change? Bet on it!
And then we learned overnight that India’s economic growth accelerated to 6.1 percent. India’s oil demand is growing, maybe not at a China-worthy pace, but still growing. Have you seen that new $2,500 Tata Nano, the world’s cheapest car, which is made in India. I think they’re going to sell a lot of those, and India’s oil demand is going to be on the fast track.
I’ve heard some “experts” saying that oil is going to get a lot cheaper and stay that way. Ri-i-i-i-ight, that’s why the major powers are preparing to duke it out over energy riches in the Arctic.
How about all that new oil that they’re discovering off the coast of Brazil? Well, let’s leave aside questions of recovering oil from such great depths, or even if the reserves are there that they think are there. Brazil is now overhauling its oil laws to make sure it keeps more of its riches. Do you think that oil is going to be cheap by the time it gets to us? Think again.
And then there’s Mexico. I talked about this is Friday’s UncommonWisdomDaily.com column, but the issue went to press before I had a chance to include that Mexico’s Pemex is forecasting its oil production will fall to 2.5 million barrels per day (from 2.65 million bpd currently) in 2010
So yeah, I think oil is going to get more expensive. If it breaks through $75, people who are short will probably cover, and that will send oil higher in a heartbeat.
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