Crisis on the China Rim: An Economic, Crude Oil, and Military Analysis

"There is a crisis rising on the China Rim, a crisis made of economic imbalances, energy insecurities, ancient hatreds, and unsettled scores. The catalyst for this crisis is success itself, the success of the People’s Republic of China in its de facto rejection of a failed experiment in communism and its rapid transformation into a thriving market economy. The inseparable companion of this success, though, is an insatiable hunger and thirst for precious resources... most important among these, crude oil."

2005.04.14 | 85 pages | download

An attack by terrorists this morning on London's public underground and bus systems is estimated to have killed as many as 40 civilians and wounded another 700 civilians.   Islamic militants, in sympathy with the severely depleted Al Qaeda terrorist network, have claimed responsibility for this coordinated attack on four London locations.

This morning's terror attack on the UK had a distinctly bearish influence on crude oil prices today as traders discounted fears of a disruption to regional and international economic growth.

After setting a record of $62.10 in "after hours" New York trading at about 5 am ET - this reflected fears that Hurricane Dennis will negatively impact energy industry infrastructure on the Gulf of Mexico coastline - crude oil for August delivery plunged $4.90 intraday.

By the 2:30 pm ET NYMEX close, the price of crude for August delivery had recovered to a full-day decline of US$0.53, or 0.9%, to $60.75.

Notably, a reported decline of 3.6 million barrels in US crude oil supplies to the 324.9 million level substantially exceeded the 1.63 million barrel decline that analysts had anticipated.

In the absence of this morning's London terrorist attack, today's new US inventory data, combined with the on-going strengthening of Hurricane Dennis, would have provided, in our view, a decidedly bullish foundation for today's crude oil prices.  Further, we expect that the negative impact of this morning's UK terror attack on economic growth and on crude oil prices will be short-lived.

Posted by:
Kevin B. Skislock
Partner and CEO
Laguna Research Partners
[bio] [disclaimer]

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