Fighting in Libya continued with the NATO taking command of allied military operations. While it appears that no quick resolution is in place for the issue, consolidation of oil prices suggests that the impacts of the turmoil in Libya have more or less been priced in. While it is not a top priority focus for oil investors, market player may find it interesting to understand China's attitude towards the issue and how it will affect her oil investments in Africa in the future.
Despite the tradition of 'noninterference' of international affairs, especially matters related to human/civil rights, China, in the UNSC meeting, voted on February 25 for sanctioning against Qaddafi and the Libya authority who harmed civilians. People believe that China's decision was for the safety of over 30K Chinese workers and citizens in Libya. However, in less than a month, the permanent member of the UNSC abstained from the vote on the resolution to allow 'all necessary measures' to stop Qaddafi. There have been rigorous debates on China's 'contradicting' stances regarding Libya's issue. According to China, it has 'serious reservations' about imposition of a no-fly zone in Libya but it gave up the veto power amid requests from the Arab League and the African Union.
While the Chinese ministry reiterated the non-interference principle remains 'one of the pillars of China's foreign policy' and 'will not change', it also noted the country has 'actively and constructively taken part in Security Council activities'. In our opinion, China may need to modify the 'non-interference' stance somehow as it's playing an increasingly active role in the political and economic stages as it clout grows in recent years. 'Acting against' its western counterparts may not be favorable for China in other foreign affairs.
As the world's second largest oil importers, China concerns very much about oil prices and oil supplies. China's largest oil fields are mature and production has peaked, leading companies to focus on developing largely untapped reserves in foreign countries. According to Stephanie Hanson in her article titled 'China, Africa, and Oil', China adopts a 2-fold strategy on oil investments in Africa. First, it secures deals with smaller countries such as Gabon, Equatorial Guinea, and the Republic of Congo as large oil producers such as Nigeria and Angola have built closed relationship with western countries. Second, it approaches these large producers by offering 'integrated packages of aid'. Recently, the Chinese ambassador to Angola, Zhang Bolun unveiled that China has loaned a total of $14.5B to Angola for national developments of the country. China receives a secured stake of oil supply in return. In 2009, Angola exported 644K bpd of oil to China, surpassing Iran to be the second largest source of Chinese imports after Saudi Arabia. While some market participants find it 'unusual' when China favored sanctioning Libya despite the country's heavy oil demand, the fact is that oil from Libya take up only 3% of China's total imports. The benefits to China are far more than the costs if the UN successfully contains the unrest and stabilizes global oil prices.
Major macroeconomic data are concentrated in the US today. Growth in personal income probably eased to +0.4% in February from +1% in the prior month. Personal spending might have gained +0.6% in February after climbing +0.2% in January. Core PCE inflation is likely to increase 0.2% in February, matching the gain in core CPI. Pending home sales are expected to have climbed +0.9% in February, following a drop of -2.8% a month ago.
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