What Goldman Learned from a Trip to China

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Includes: CAM, EQNR, LUKOY, PZE, SU, WFT
by: Cullen Roche

Goldman Sachs has been bullish about all things BRIC for years now. In a recent trip to China a number of Goldman analysts visited local and foreign oil and gas related companies as well as various equity investors in major Chinese cities. Their main takeaway from the trip was that their bullish thesis on the country was justified, China commodity demand would drive prices higher and they feel increasingly confident about their current $94 crude oil price target. Their micro takeaways from the trip included some focused ideas on the energy markets:

  • Sustained oil demand growth on-track, with the rebound this year having been driven mostly by domestic drivers as export-oriented markets have been weak.
  • Domestic crude oil supply growth expected to remain anemic, leading to growing crude oil imports and a hunt for international oil acquisitions by Chinese major oil companies.
  • Government “stock piling” of crude oil is likely to be a sustainable source of demand growth for many decades into the future.
  • New refinery start-ups and product pricing mechanism impacting refined product inventories.
  • China-based investors focused on supply side of our bullish view as opposed to demand in sharp contrast to most investors in US and Europe we meet with that are focused on demand uncertainty as opposed to oil supply.

How to play it? Goldman likes 10 international names in particular. Most are traded in the U.S. or other accessible markets:

  • CHINAGS