Monday, November 17, 2008

Did Beijing Olympics Create False China Economy?

Is it mere coincidence that the global oil demand - fueled primarily by China and India - began to explode about the time that China began work on the infrastructure needed to support the 2008 Olympics? Is it also mere coincidence that the same demand fell off the cliff shortly after the Olympics were held in August?

I don't think there's much argument by folks not named Bill O'Reilly that China has been the big player in the oil demand game. One would think that China's big economic gains are in cheap DVD players, lead-laced child toys, and melamine-laced baby milk. On the other hand, what if their growth was smoke and mirrors? That the billions upon billions spent in a compressed time frame to support the Olympic Games created a false growth pattern, one that has forever ended?

It makes me wonder if even $80 oil is a high water mark we may never see for years.

Update: This article says that it really is the US's drop in oil demand that's driving the prices down, due to the fact that the US is the biggest single consumer. The drop started in August. That may be true, but there wasn't a sudden US surge in oil consumption over the last year that drove oil speculative prices to nearly $150 a barrel, it was the growth forecasts of China's economy. The speculators drove it up, and they are driving it down now that China is tanking.

This article says oil will fall to around $40 and rebound into the $50's for the foreseeable future.