The U.S.

Fuel Consumer &

The Rest of the World
James L Bradley July 10th, 2011 Agadir
If by some remote opportunity you were to pull up a chair in a caf on the Moon the table crowded with other international fellows, every one of them with the exception of you would agree that the Far East is the key to the rising cost of fuel for Americans at the pump. To you and your fellow Americans back on the home world the idea of this wouldnt set to well so be it. As over the past century, America has always comes first when it came to that Black Gold being sucked out of the ground here and there, we were number one in our mobile technology an because of our love for our horseless carriage, we constructed miles and miles of paved highways accompanied by petrol stations with pretty ladies wearing next to near nothing pumping the gas into our fancy, sometimes bigger than a modern day yacht autos we were it, bar none! I read yesterday that the average price at the pump in the USA has dropped a little over $0.40 a gallon to $3.59, a welcome relief I imagine by some of you Sunday drivers, and the moms and pops that have to crank up the unit sitting in front of the house to head off to their 8 to 5 on Monday morning. Unfortunately the lower local, state, and federal taxes that the US citizen pays is relatively lower than what the rest-of-the-world pays at the pump, this fact makes the US pump prices more sensitive to increasing world oil prices than in higher taxed regions such as Western Europe or even Canada has made the price-sensitive demand in the US a real bummer to the American consumer. No matter I imagine that this summer well see reduced consumption as Americans shy away from the pump and curtail their summer vacations, by staying within a days drive from their home base its only natural Americans hate to pay high prices for gasoline, after all they feel they are the worlds top users and are keeping the oil industry afloat. As expected the partial solution arrived at by Greece has removed some of the jitters in the oil marketplace, whereas the recent downswing of the price of crude during the last part of June ($108 for Brent on June 29th) is correcting itself, albeit Greece is far from out of the fire, the thought that the Euro will stabilize has allowed the cost of a barrel of Brent to crawl back up to $118.20 a 9.4% increase in less than 2-weeks West Texas stuff is running around $96.48.

The recent boondoggle by the IEAs release of 60 million barrels of some nations reserves onto the refineries did nothing but raise the hair on the necks of the OPEC countries, whereas the polite political response by the Secretary General of OPEC Abdullah al-Badri said, We dont see a good reason to release this quantity and I hope the IEA will refrain from using this practice. Putting some substance behind his statement or mild threat, Saudi Arabia has curbed their plans to increase production by 1 million barrels a day to 500,000 barrels so take that Obama. As the USA continues to reduce its consumption of oil, across the world there have been power shortages noted in China and Japan, as well as India and Pakistan that indicated there will remain an increasing demand for diesel fuel to power those diesel-fired power plants. While very few places in North America burn triple-digit quantities to keep the lights on, there are many regions in Asia that really suck up to the diesel nozzle to keep their expanding fleet of factories pumping out goods to export to Europe and North America. Although published reports last month from the Far East show that they are not as immune to the recession as they believed, whereas the demand for their goods is drying up over the slowdown of purchasing in the USA and Europe is finally rolling ashore in their land. The Purchasing Managers Index (PMI) slid drastically in China, India, South Korea and Taiwan as factories do battles with weaker consumer demand outside of their borders and a tightening of their monetary policy at home because of local inflation. This was the 2nd consecutive month of weak readings, the financial houses shoot the finger at the Japanese earthquake, a steep rise in oil prices, and the ongoing sovereign debt problems in Europe, on top of this the latest labor figures released a couple of days ago from the USA in only going to make their PMI slide further. Many financial gurus predict a 2nd-half recovery and strongly argue that Asia is well positioned to managed the slowdown, it appears that not too many agree with this in that investor and consumer confidence has eroded in many areas of Asia. months. Even though the PMI across the region is down, the increasing factories in China still need power, rumor amongst manufactures say they are expecting power shortages this 2 nd half of this year as big or bigger than in 2004, which temporarily experienced many roaming outages that blacked out huge swaths of Chinese manufacturing. These past events in turned bumped up Chinas diesel consumption over 600,000 barrels a day. Available records show that China between 2000 and 2008 increased on average their daily diesel demand by 8.25%, from 1.495mil to 2.772 million barrels, while the USA demand only grew by 0.78%, from 3.722mil to 3.945 million barrels a day with a 6% decrease in demand in 2007. In 2002 both countries saw a Japans especially is suffering a dramatic slump, albeit they (as always) smile and say they expect a huge improvement in a few

decrease in demand Chinas demand by 8.08% and the USA by 1.84%. The available records for 2009 dont exist for China, but in the USA the demand in 2009 fell below the 2008 demand by 7.97% to 3.631 million barrels. The primary reason for so many localized power generators in China is their lack of an adequate national electrical grid, whereas due the tremendous voltage drops over the old infrastructure they are limited on how far they can transport power this condition is being addressed with the installation of a ultra-high voltage network (UHV) of 800kV lines the network should complete eight of these cross country inter-ties by 2015 and another 15 by 2020. This adding of the UHV lines will improve the availability of power to the power-hungry east coast, whereas one manufacturing center Shanghai gets some of its power from the hydro-electric dam from the massive Three Gorges Dam on the Yangtze, a new DC 800kV line will enable it to receive additional power from a new dam (Xiangjiaba) on the Jinsha river which will have a generating capacity of 6,400 million watts, and another when completed the nearby Xilodu Dam will add another 12,600 million watts (it is about 55% the size of the Three Gorges Dam) making it the worlds 3rd largest hydro-electric dam behind the Three Gorges and the monster in Brazil the Itaipu. All of this is well and good, but today the factories are hamstrung and must suck their power from whatever source is available, which happens to be coal-fired and diesel-fired power generating plants now you see the demand of the almighty deity oil and its equal evil partner coal. With respect to coal the massive mines, of which most are miles from the regions that need the material depend on the rail system to transport the much needed coal is plagued with ice storms, flooding, dust storms all which disrupt the transport of the coal from the coal fields in the north and northeast to the power generators in the central, eastern, and southern regions. All a problem as the manufactures increases their load on the electric network daily. Throw in the increased demand of another 250,000 barrels a day for diesel from Japan in order to compensate for the sidelined nuclear reactors, therefore it is not very hard to see nearly a million barrels a day of additional oil demand from two of Asias biggest economies and let us not forget the 18 million new cars that have been added to the rolling stock this year in China. It appears that not in any time soon will the demand flatten out in China, therefore unless the North American nations can deliver a cheap and abundant source of oil (NOW), dont expect the price to fall below $3.25 a gallon it is not in the cards, even with the jokers pulled from the deck!