As the world’s number one energy consumer China is enjoying the low prices while they last. Never one to settle however, China is finding still more ways to take advantage of the dire straits gripping several oil producers.
China’s slowdown is real – preliminary data suggests 2014 will mark the weakest GDP growth in 24 years – but the country still has plenty of money to play with that is taking it places the World Bank and the International Monetary Fund (IMF) wouldn’t dare. Their reward? More oil of course. With tough conditions and greater access to raw commodities, China looks to turn the high risk into equal or greater returns.
While perhaps more cautious, China is ready to keep giving. On Wednesday, Venezuela and President Nicolas Maduro landed more than $20 billion in investment for economic, social, and oil-related projects. This arrangement precedes what Maduro hopes to be a more liquid $16 billion loan that could be more freely applied to its other debt obligations. Still, China sets the terms and it wants more oil in return – more than 100,000 bpd greater than current levels.
In Argentina, Brazil, Peru, and the aforementioned countries, China is fronting the bill and staking claim to the raw goods. The country’s high-interest, inflexible lending draws parallels to the multibillion-dollar payday loan industry in the US. In this scenario, the lender is caught in a circle of debt with no real impetus for change. That circle may continue for some as China is pledging $250 billion in investment in the region over the next decade. The country’s oil-based financing is still an unproven gamble – and lower prices increase the default risk – but it’s shrewd move for what will soon be the world’s largest consumer of oil.
Full article: China Buying Up Latin American Oil (Oil Price)