David Pescod's Late Edition -- Canaccord Capital Corporation
CRUDE OIL (April Contract) $58.91 -1.14
NATURAL GAS (April Contract) $6.912 -0.171
There are two little tidbits of the last week or two that should certainly makes those who are in the bullish camp for the price of oil feel a little bit more comfortable. One of them was an article found in the New York Times but also in other publications where they took a hard look at Pemex the national oil company in Mex- ico and the reasons to be concerned for that company.
Mexico and Pemex is the fifth largest oil producer in the world in 2005, and is sitting on tens of billions of barrels of untapped oil reserves according to the New York Times piece. But they con- tinue that much of that is in deep waters in the Gulf not far from where American companies have announced discoveries.
The question is does Pemex have either the money or exper- tise to get at that oil. They point to Cantrell in the shallow waters of the Gulf and it is the world’s second largest oil field. That one field used to account for about 60% of Mexico’s oil production that has gone into a sharp decline. Production at Cantrel fell 13.5% last year and is estimated to fall another 15% this year from 3.4 million barrels a day in 2004.
Meanwhile Pemex’s proven reserves of crude oil had fallen to 11.8 billion barrels at the end of 2005 from 15.1 billion barrels at the end of 2002. The big problem for Pemex of course is that the government owns it and we all know that anytime a national gov- ernment owns a utility like this, you can count on it being poorly run and if run at all its run for the purposes of the politicians.
In this case the Mexican government depends on Pemex to finance its budget and last year sales of Pemex reached $97 bil- lion, but $79 billion of that went to the government. That ac- counted for almost 40% of the entire federal budget. Needless to say, there is not a lot of that money left for exploration or building needed facilities and the like. And one wonders how much longer Mexico will even be able to be an exporter of oil.
The other tidbit came from China, where its booming passen- ger car sales have soared by 33% in just the first two months of this year compared to the same period of 2006. The sales in January and February totaled 712,000 units. Their total sales in- cluding trucks, and other vehicles topping 1.3 million units.
While total vehicle sales in China hit 7.2 million units last year are far lower than American sales, the world’s biggest at around 16 million one has to remember that it was only roughly 25 years ago that there was only a handful of privately own cars in the en- tirety of China. And we all know every one of those vehicles needs the oil to move.
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