There was recent economic news from China that is very bullish for the oil and natural gas sector as a whole, including stocks such as ExxonMobil (NYSE: XOM), Suncor Energy (NYSE: SU), Octagon 88 (OTCBB: OCTX), and Americas Petrogas (OTCBB: APEOF).
Exports and imports are increasing for China.
For the month of November, exports increased by 12.7 percent, according to the General Administration of Customs. Imports rose by 7.6 percent. That resulted in a trade surplus of over $30 billion for November for China.
Why China Matters
China not only has the most people in the world, it has the most purchasing power of any nation. It is the largest consumer of many commodities, ranging from coal to copper. According to the International Energy Agency, the demand for oil and natural gas from China will increase greatly in the decades ahead.
Its economy is obviously picking up and starting to recover. About 40 percent of China’s gross domestic product consists of exports to the Europe and the United States. The Great Recession devastated both of those regions. Clearly the increase in exports and imports in China shows that its factories are starting to sell more. That results in an obvious need for more fuel.
From that demand, the way that prices for oil firms should go are up and up!
The Market Has Already Risen for Energy Companies
That has certainly been the direction for recent market action. Suncor Energy is up more than 11 percent for the last six months. Since mid-July, Octagon 88 has jumped more than 30 percent. Over the previous quarter, ExxonMobil is up nearly 10 percent. Americas Petrogas is trading at about double its low for the year.
This increasing economic activity in China and other parts of Asia has directed the buying choices of legendary investor Warren Buffett.
The “Oracle of Omaha,” considered by many to be the best ever and worth over $50 billion, is a major shareholder of both Suncor Energy and ExxonMobil. Berkshire Hathaway (NYSE: BRK-A), the firm that he heads that functions as a holding company, purchased Lubrizol for around $10 billion in 2011.
According to The Wall Street Journal, “Two-thirds of last year’s revenues came from outside the U.S.A. The company has 40% of its plant and equipment overseas. And that’s rising. Last fall Lubrizol broke ground on a new factory in southern China, that will begin production in 2013. The company is a big beneficiary from economic growth in emerging markets. In countries like China, India and Brazil, hundreds of millions of people are moving into the middle class, buying cars, and driving them more. Every drive needs fuel, and every gallon of gas needs additives.”
China Matters Outside of Oil Stocks as Well
Buffett also spent tens of billions buying Burlington Northern Santa Fe Railroad in 2009.
A huge chunk of the business of Burlington Northern Santa Fe is carrying goods from North America to Asian markets. From an article in The Huffington Post about Buffett $34 billion buy, “Burlington Northern is the biggest hauler of corn and coal for electricity, making it an indicator of the country’s economic health. It also carries everyday items such as refrigerators, clothing and TVs from Western ports like Los Angeles and Seattle. . . . It also hauls corn, wheat and soybeans, much of it exported to China.”
Based on those purchases, it certainly appears that Warren Buffett is bullish on economic growth in China.
From that expansion in buying and selling, there is an inevitable need for more oil and natural gas. Business for ExxonMobil, Octagon 88, Suncor Energy, Americas Petrogas, and the entire sector should increase from that demand. Also rising should be the share prices for those stocks.
What are your thoughts on increasing demand in China and its impact on oil and energy?