Dude, Where’s My Oil?

Reading a newspaper in Beijing this week, two stories on the
same page grabbed my eye. A Chinese company is trying to buy the Hummer brand
from GM and the state-owned oil company is building massive storage tanks to
stockpile gasoline and diesel fuel. It may make one chuckle – – they’ll need
more gas to serve all those gas-guzzlers – – but there’s a more important
message to take away from this news.



First, when a country the size of China increases reserves
of anything by half, the rest of the world can expect shortages and lasting
price increases. When it’s refined fuels – – not crude oil, but refined
gas/diesel – – that’s even more daunting, because it takes three barrels of oil
to make one barrel of refined product. That means much of the global crude
supply is about to disappear, which will also drive up the price of plastics,
building materials, and other things that come from a barrel of black gold.


Second, if China is strategically preparing for the rebound
of the global economy by stockpiling oil products, it is probably gobbling up
other commodities too. Why not – – China is sitting on a trillion dollars or
more of foreign currency and their growth rate is still red hot by global
standards (estimated to be at least 7% in 2009, while most other economies are
in negative territory). While commodities are cheap because of sagging world
demand right now, China can buy up supplies and sit on them, like any smart
investor betting on a resource-constrained future.


Smart businesses would be looking for alternatives and
locking up their supply chains. Even smarter ones would figure out how to get
the same productivity with less, because we’re about to experience shortages of
basic commodities at any price. And when you buy your next Hummer, don’t be
surprised if the gas gage reads “Empty” in Chinese.