Chinese auto plant
China is now the world's third largest carmaker, passing Germany. There are 25 million cars on the road there and manufacturers are building 5 million a year, including models which may find their way to the U.S. soon.

Playing Politics With Oil?

Weekly World Energy Review - 29-September-2006

By EV World

As America heads into an off-year election that could well shift the balance of power in Congress, there is a great deal of talk that the recent drop in the price of oil and resulting fall in pump prices are just a pre-election ploy by the White House to shore up its sagging approval ratings.

Defenders of the Bush Administration and industry observers disagree, saying the White House and the Republican Party can’t control market forces to that extent. Instead, analysts like author Michael T. Klare, point to three key factors had has taken some of the steam out of the overheated oil futures market. Those factors are the end of hostilities in Lebanon , a mild hurricane season in North America -- though not in the Pacific or mid-Atlantic -- and a lessening of tensions between Iran and the United States. There also appears to be sufficient supply of gasoline on hand in America.

ODAC newsletter editor Doug Low, however, noted that of the three factors, two can be controlled by the U.S. government: pressure on Israel to withdraw from Lebanon and an end to saber-rattling over Iran’s nuclear power program. Both crises could easily be rekindled after the November elections since neither has actually be resolved, Low points out.

Oil companies are spending a lot more these days on production and reservoir development and seeing much smaller returns. A major reason for escalating costs is the shortage of rigs and talent, which is bidding up the price for equipment and geologists.

Another factor is that smaller deposits of oil are being found and they are getting harder to reach, like the Jack No. 2 discovery in the Caribbean. Here, Low speculates as to why the American media have been hyping this discover just before the elections when (1) it was made two years ago and (2) there isn’t any evidence that the field will produce anywhere near what the press have been claiming.

Turning to China, it has now replaced Germany as the world’s number three carmaker, behind the U.S. and Japan. There are now about 25 million cars on the road in China, a number projected to increase to 120 million in fifteen years. Of course the question is, where will they get their oil?

From Iraq? Maybe, since the government there has offered to revive a pre-U.S. invasion agreement to develop the first new oil field in Iraq in decades. Both France and Russia, who also had similar agreements with the regime of Sadaam Hussein, are watching with intense interest Iraq’s overtures to China. Meanwhile, U.S. oil companies just aren’t all that interested in investing in Iraq given the strife there where more than two-thirds of the population want the U.S. out of the country.

So, if America can’t rely on Iraq for its oil, where will it turn? The latest Hirsch report indicates that if we think it’ll be alternative fuels, then we’d better start now and start spending big… to the tune of $20 trillion over the next decade or so. That was “TRILLION” … not billion.

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Published: 29-Sep-2006


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