OIL PRICES WILL RISE
I get a kick out of some of these official estimates in various areas. For example, the IEA is assuming Chinese demand for energy will grow by 6.8% in 2007. That number does not jibe with the economic numbers China is experiencing, such as Chinese industrial growth, which will be about 18% for the first three months of the year. Who are these guys? Why do they always miss the data points? Could it be because the people who give them the forecast demand data have a vested interest in keeping the estimates of their demand low, so they can buy cheaper? It may also be, because the people who give them the supply data, for national pride reasons over-estimate how much they can produce. In either case, it makes the forecast data pretty inaccurate.
It is highly probable that demand for energy from China will grow by over 9% this year. In addition, as we have mentioned before, non-OPEC producers usually over-estimate the amount they can produce. Both of these events (lower supply and larger demand) put upward pressure on oil prices.
In our opinion, whether there is fighting in the oil producing regions or not, oil prices will rise. We expect them to be above $70 per barrel by the end of 2007.
This is bullish for oil producing companies, especially those located in regions where demand is strong, such as Asia. This is also good for oil service companies, especially those with the ability to do deep water drilling. Many of the world’s new oil discoveries have been in deep water and require specialized equipment.
GERMANY IS THE NUMBER ONE EXPORTING NATION ON EARTH FOR THE FOURTH YEAR IN A ROW
Germany exports more to Russia and the former Soviet bloc members, and almost as much to the U.K., as it does to the U.S. Therefore, a decline in U.S. economic activity will not hurt Germany as much as people assume. The main sales points for German products are good quality and well known brand names. Germany has accomplished this despite of the fact that the Euro has risen by more than 30% versus the dollar in the last few years.
China is the world’s number two exporter.
THE U.S. IS STILL A STRONG EXPORTER: #3 IN THE WORLD
Last year, U.S. exports rose faster than U.S. imports in percentage terms; just not in dollar terms. It is not weak U.S. exports, but the immense imports of foreign goods that is causing the balance of trade and balance of payments deficits in the U.S. This is contributing to the continuing decline of the dollar.