Strong Emerging Market Oil Use Pushes Up Price

Robert Hsu, April 29, 2008

Oil prices hit another all-time record high recently, reaching over $120 a barrel. With prices already at record highs, how much higher can crude oil prices go? Unfortunately, I don't know the exact answer, but what I can tell you is that we can expect prices to continue moving higher.

Don't rule out the possibility that oil may hit $150 per barrel. I actually wouldn't be surprised to see oil at $150 per barrel by the end of the year. It took nearly three years for oil to breach the $100 a barrel mark from $50 a barrel. And I think it will take less than a year to see oil at $150 a barrel.

So anybody who expects oil prices to retreat soon is most likely going to be wrong. While a recession in the U.S. would typically lead to lower prices, strong demand from emerging markets will continue to fuel the energy bull run.

Much of this increase in demand can be attributed to economic growth of more than 8% in China and India, coupled with increasing car ownership among the two countries' combined populations of 2.4 billion people. So despite an economic downturn in the U.S., oil demand will still rise 2% this year.

According to the International Energy Agency, China, India, Russia and the Middle East should consume more crude oil than the U.S. this year, which would be the first time ever. These countries are expected to burn 20.7 million barrels a day this year, up 4.4% from a year ago. That should more than compensate for falling U.S. demand, which is expected to contract 2% to 20.4 million barrels a day.

Although demand is strong, oil supplies aren't growing. So companies that focus on the exploration and production of crude oil have been huge beneficiaries of the supply/demand crunch. Offshore drilling, in particular, has become a hot business. Not only are they benefiting from high demand, there are just no enough drilling rigs so they are also able to charge higher operating day rates.

To take advantage of the opportunity in the energy sector and offshore drilling, I am going to recommend an offshore drilling company that is benefiting from the strong oil demand in emerging Asian markets.

To find out the name of this oil play, the reasons behind my recommendation, as well as my specific buy advice, subscribe to Asia Edge today.

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