Oil prices now trade at a five-year low.

If oil prices overshot on the way up to US$147, then the opposite is certainly true today with prices at US$36 a barrel. At some point, crude oil will bottom; the odds of a spectacular bounce occurring is highly likely as global governments spend trillions of dollars at the same time to desperately boost economic growth in 2009-2010.

China, which is the world’s second-largest consumer of oil after the United States at 9.4 million barrels per day, is now importing the lowest amount of crude oil this decade amid a softening economy. U.S. demand has also declined sharply to less than 19 million barrels per day.

Did Crude Overshoot on the way down to US$36?

According to the International Energy Agency (IEA), oil consumption in 2009 will decline to its lowest levels since 1982.

The IEA cut its demand outlook last week as the global economy continues to deflate since the fourth quarter. The Paris-based agency now projects oil consumption will decline by 570,000 barrels per day to 84.7 million barrels. Just 12 months ago, the world sat on a net supply deficit of about one million barrels.

More than any other nation, China has seen the largest spike in net oil consumption this decade. Chinese oil consumption has increased by 3.2 million barrels per day since 2000, accounting for a third of the total increase in global demand.

The Chinese are also in the midst of their biggest expansion of credit in history following the passage late last year of a US$541 billion dollar stimulus package. That spending should at least boost short-term demand for oil assuming consumption in the United States is also supported by the government’s recent passage of the $878 billion fiscal spending package.

Even the biggest bears will concede that concerted global government spending will buy at least a few quarters of economic growth later this year or in 2010 – and that should boost oil prices. Combined with additional supply cuts by OPEC and a host of cancelled exploration and development projects over the last few months, oil prices are bound to bottom shortly.

The above chart shows oil prices dating back to 1997. In 1998, amid the tail end of the Asian economic crisis and the Russian debt default, oil prices bottomed at an incredible $10.50 a barrel. Ten years later, at its peak, oil climbed a cumulative 1,300%.

I think it’s highly unlikely we’ll see 1998 prices again, unless another major bank fails or worse, a major sovereign borrower defaults in this cycle. This remains a possibility in a brutal deflationary environment.

Yet, if the time to buy an asset is when prices are low and in near disrepute, then crude oil fits that bill right now. When the time comes to buy oil, look to the oil futures or oil futures related ETFs. They’ll give you much more bang for your buck than most oil stocks.

Source: Depressed Oil Prices Approaching Speculation of a Lifetime

China is announcing to the world (see AFP story) that it will NOT INCREASE OIL IMPORTS due to the impact of the recent earthquake swarm. How utterly, totally responsible of them!

Whoah! Say hello to oil price moderation, if not a slow retrenchment in oil prices. (Is the Fed listening?)

Actually, if this news gets the play it deserves the price of oil ought to sell off by $20 or so per barrel. This pops the bubble.

Seriously. Knock-knock. Who’s there? POP!

The initial energy-speculation on earthquake-related oil demand was based on the fact that hundreds of Chinese dams were damaged by the earthquakes. So hydro-electric power output is down. And the thinking was that China would burn diesel to spin generators. But you just cannot apply conventional thinking to those Chinese. Very inscrutable, no? (Remember the Korean War? No, the Chinese would not cross the Yalu River to fight the American Army, right?)

The Chinese have a way of surprising the world. The reality is that overall electric demand is down in China because of damage to infrastructure. Collapsed buildings and factories do not use electric power.

So with candor verging on the astonishing, China says “no.” China will not increase oil imports.

Also, someone in China must be looking at the import bill for oil at $130 or so, and determining that China has to use oil more efficiently. Especially since China subsidizes fuel at the pump. Chinese consumers do not pay the “world price” for fuel. The difference comes out of the hides of Chinese oil companies, plus the Chinese government. As Mr. T used to say, “The word is ‘pain.’”

Well, China works hard for its money. And the top leaders evidently want to quit spending so much on foreign energy sources. Especially since they have to pay for the oil twice… once to import it, and again to subsidize its use.

As the story below quotes the deputy director of the National Development and Reform Commission, “Now with oil prices so high, it would be unwise to continue increasing the import of oil. It’s a better approach to adopt even more energy-saving measures.”

As for where China is going in all of this… It’s not as if there is a lack of energy-efficiency technology in this world. Really, if there was never another patent issued in any field of energy-related technology — just shut down all research on new ideas — we could spend the next 50 years or so just adapting the existing technology base to transforming the energy systems of the world. The Chinese know this.

R&D for new stuff is good, but the big challenge for the world is systems integration of what is already discovered. The richest energy-mines are in the technical journals on the shelves of the world’s libraries. The Chinese know this as well.

So this news embodies many different levels of importance. But the news is entirely good.

Until we meet again

Byron King

Note: Byron King is a frequent contributor to the free e-letter Whiskey & Gunpowder. To receive daily insights into energy, oil, commodities and other natural resources sign up here!

Source: China Isn’t Increasing Oil Imports