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Friday, April 08, 2005

Oil and China

This year, China’s crude imports have been falling and the dollar has rebounded. Yet, oil prices continue to rise. Rampant Oil speculation is challenging the Fed and China's Central Bank to tighten interest rates. The Fed may have to raise interest rates by 50 basis points at a future meeting to chase the speculators. (Probably after they drop the word "measured").

China’s crude imports in Jan & Feb 2005 declined by 12.8% from the same period last year. China’s oil demand has been exaggerated by a shortage of domestic electrical production capacity. China is investing domestically to correct the problem. As capacity for electricity ramps up and China slows down, their demand for oil will soften further.

Combine higher interest rates, a strengthening dollar, greater refining capacity, a slowdown in Asia & Europe and reduced Chinese demand. This could lead to a $15 a barrel reduction in the speculative premium currently in place at $55 a barrel.

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