The International Energy Authority described the oil price as “entering a dangerous zone” back in January. This was a reference to the price of a barrel of oil being likely to exceed $100 (Investors Chronicle 07/01/2011). The recent unrest in the Middle East and spreading political uprising there is not helping either.
This week it was announced that China has overtaken Japan as the second largest economy in the world. It is expected that the economy will overtake the USA in the next decade. The situation has changed rapidly and there are now 90 times as many cars in China as there were 20 years ago. In 1993 China was a net exporter of oil, but now it is a net importer. The country is in the process of stockpiling 500 million barrels of oil. To put this quantity into perspective that amount is roughly half of BP’s total annual output (Investors Chronicle 18/2/2011). This policy will no doubt increase the price of oil. China can afford it, the country saves about half of its national income. The UK saves only 12% of its national income. China can afford to buy the resources as it is holding many western government bonds including $900 billion (£557bn) of USA debt. Inflation in China is rapidly rising meaning that price rises here may start to affect other areas of the global economy. More oil price rises on the way then?
The following images show the relative decline and rise in oil consumption between Europe and China in million barrels of oil per day:
Source Oil Watch Monthly March 2010 PDF Report.