Oil Price Keeps Falling But China's Demand Will Set-Off A New Global Scramble For Natural Resources.

How China’s thirst for oil could give you a huge profit opportunity

Last Friday, leaders of the OPEC oil cartel met in Vienna to try and halt a collapse in the price of oil...

They slashed global production by 1.5 million barrels a day. But it wasn’t enough.

The price of oil kept falling.

And it is now down by 53% since its peak.

And those falls are now attracting the attention of the biggest beast in the global markets — China.

China’s phenomenal economic growth has sent its demand for oil soaring. And to meet that demand Chinese oil companies are rapidly expanding abroad — particularly in Africa.

That could be about to set off a new global scramble for natural resources...

And in a moment, I’ll tell you about a rather off-beat way that I have found to buy into that boom.

Gearing-up for the new Great Game

China’s rapid industrialisation over the last two decades led to a massive increase in its demand for oil. China’s booming economy has been the biggest driver of the huge increase in the global price of oil over the last four years.

Now with the price of oil falling and the oil companies share price taking a beating, they are making a huge push to grab international oil assets.

China National Petroleum Corp. (CNPC), the nation's top oil producer, plans to raise $3 billion in new money next Monday. The bulk of that is going to be used for an aggressive overseas expansion.

China’s economy is still growing rapidly — 9% in the last quarter. So demand for energy is still rising. The current sell-off in the stock markets and fall in the price of oil gives them a chance to lock-up oil supplies on the cheap.

Just last week CNPC announced that it has signed a deal with Uzbekistan's state oil company. They will jointly develop an oilfield in the central Asian country.

We have looked at the growing struggle for Central Asia’s energy reserves a number of times in this newsletter. In the 19th century Russia and the British Empire jockeyed for influence over this vast region. Historians have dubbed that contest the

Great Game. We are seeing the beginnings of a new "Great Game" — a struggle to dominate the region’s natural resources.

That’s what makes Georgia so important to the West. The little Caucasian country is the western gateway to Central Asia. Important oil and gas pipelines from Kazakhstan and Azerbaijan run through southern Georgia. The pipelines run on into Turkey. And from there the energy is delivered to Europe and the US.

And with China now pushing further into the region, Georgia is going to become even more important to the Western powers.

That’s why the Western powers promised US$4.5 billion in "recovery aid" to Georgia last week. That’s about four and half times the value of the damage caused by the conflict with Russia in August. It is about the contest for energy.

China muscles in on Iraq

But China isn’t stopping at Central Asia. They’re now muscling in on the Middle East as well. For decades, the region has been dominated by the Western oil giants and Middle Eastern national oil companies. China’s entry is going raise the stakes all around.

And the Chinese aren’t beating around the bush here. They have gone straight for the jugular...

In September Iraq’s oil ministry said that they country would sign a US$3 billion oil agreement with China. The deal will allow CNPC to develop the Ahdab field for 20 years.

The Chinese haven’t had to fire a single shot in Iraq to get their share of its oil. They haven’t lost a single man there either. And they definitely haven’t had to bear the ruinous cost of a war. They simply rolled-in behind the "surge" in American troops now that the security situation in Iraq has improved.

You can understand why the Iraqis are keen on getting the Chinese in. It offers them a long-term guaranteed market. But I think that an even bigger factor is that it gives the Iraqis a counterweight to American influence in their country.

The real prize is Africa

China’s investment in Central Asia and the Middle East is still small fry though. For China, the real big prize is Africa. The continent holds huge untapped reserves of oil. The Chinese have already invested more than US$30 billion in Africa’s oil industry. And that looks set to rise sharply. What makes Africa so attractive to the Chinese is that African leaders actually welcome their presence in the region.

And smaller oil companies with big operations in Africa could soon become prime takeover targets. Chinese takeovers of African oil producers probably won’t be met with the sort of jingoism that it faced when it tried buying American oil company Unocal in 2005. And that means that London-listed companies like Addax Petroleum, Afren and Tullow Oil could soon be on the block. The Chinese have the resources to take advantage of the current turmoil in capital and commodities markets. And they’re starting to flex that muscle.

The battle for global resources is heating-up

China’s economy is still expanding. Its demand for resources is still growing. And they are going to take advantage of the global market turmoil to grab as big a slice as they can.

And recession or not the Western powers are going to have to keep up if they don’t want to be crowded out. What that means is that the contest for global resources is going to speed up over the next few years rather than slow down.

That is already happening in Africa.

You see China’s drive into Africa puts them in direct competition with the US. The Americans have been active in West Africa’s oil industry for a long time. And they are getting very nervous about China’s charge into the region.

In fact, they are so determined to protect their oil interests in the region that they have now sent in the troops.

The U.S. Navy has started deploying ships in the waters off western Africa. This is the U.S. navy’s first serious engagement with the region since it operated an anti-slavery squadron in Cape Verde back in the 1840s!

Officially, they are there to help the region’s ill-equipped navies take effective control of the region’s waterways. Piracy is still a big problem in this part of the world. And the fleet is meant to make it easier for the U.S. oil giants like ExxonMobil and Chevron to get the oil out of countries like Nigeria, Angola and Equatorial Guinea.

But there is a lot more to it than that...

Critics of US foreign policy see the increasing military engagement with Africa as part of a much more aggressive agenda to secure energy supplies and counter China’s growing influence on the continent. And they’re probably right.

Because the Americans are not stopping at fighting piracy. In fact, they recently created a new combatant command called AFRICOM. They now have a whole military strategy for the oil-rich region. That underscores the region’s growing strategic importance to Washington.

Here is a simple way you could profit from this...

We are seeing a major contest for influence on the continent between the United States and a fast-rising China. But it’s going to be fought with the promise of economic incentives more than with bullets.

That’s good news for Africa. Because unlike the U.S.-Soviet power games in Africa that wreaked havoc on the continent during the Cold War, this time the big winners are going to be the African countries themselves.

And this where I have spotted a unique investment opportunity. It is a little company that owns a vital port on the western coast of Africa. And this port is rapidly becoming the central logistics hub of west Africa’s oil industry.

The Chinese and the American’s both need access to it if they are going to fully exploit west Africa’s huge oil reserves. And that puts this company in a very sweet position. Because the Chinese and the American’s are going to have to pay for that access.

This company’s shares trade right here in London. But most investors would never have heard of it. The company is still tiny. You can still buy its shares for just pennies. But I don’t believe that it will stay that way for much longer. I have already sent members of my Profit Hunter investment service a report on how to buy into this remarkable company.

To take a look at that report, just click here.

(Your capital is at risk when you invest in shares, never risk more than you can afford to lose. Please seek independent financial advice if necessary. Fleet Street Publications Ltd. 0207 633 3600.)

Manraaj Singh
For Fleet Street Daily

The Daily Reckoning — Financial Road Kill

The big news yesterday: the Fed cut rates to 1%. Only 100 basis points left to go, in other words.

Yes, dear reader, the Fed’s key lending rate will probably go all the way down to zero. And the Dow will probably go to 5,000.

Sooner or later, the dollar will collapse too. We saw a hint of it yesterday... when the buck dropped back to $1.29 per euro.

This morning, Asian stocks are "soaring" on the news of the Fed cut. Predictably, investors think the feds finally might have this thing under control. Predictably, they are wrong.

You’ll recall that the credit crisis began in the summer of ’07. Before that the ‘war’ between inflation and deflation had been an even match. But then, sub-prime debt came upon the battlefield like a new tank. In a matter of days, deflation seized the high ground and has been winning ever since.

Of course, you have to give the feds credit. They’ve fought a good fight. First, in England, they bailed out Northern Rock and later nationalized the whole banking system, guaranteeing practically all deposits. In the US, they abandoned Bear Stearns to the enemy, but they took over Fannie and Freddie...

You can read the Daily Reckoning in full here.

P.S. If you enjoyed this article you can find out more about our free email, The Right Side by clicking here.

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Oil Price Keeps Falling But China's Demand Will Set-Off A New Global Scramble For Natural Resources.

The Battle For Global Resources Is Heating-Up