Two events occurred in January that could have a major effect on the oil industry—the first $100/bbl sales of crude and the unveiling of the world’s cheapest car, said John Westwood, managing director of the UK consultancy Douglas-Westwood Ltd., at a Jan. 10 meeting with industry representatives in Houston.
To some financial analysts, the initial intraday spike of crude to $100/bbl Jan. 2 on the New York Mercantile Exchange was just another effort “to manipulate markets.” Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, earlier dismissed that first sale as “a controversial one-lot transaction done on the floor away from computer trading.” Westwood said the 1,000 bbl contract later was resold at a loss of 60¢/bbl. Meanwhile, he said, “The world went berserk” as economists, politicians, and the general public railed against high oil prices.
Crude hit a second intraday high of $100.09/bbl Jan. 3 on NYMEX before slipping lower amid concerns of economic weaknesses. “Technically the positive momentum is still valid and the risk remains for a strong advance when and if [a closing price of] $100/bbl is broken,” Jakob said at that time. But in subsequent sessions, crude traded in a $7/bbl band below the magical $100 mark.
Economic and population growths have been the fundamentals behind high oil prices, said Westwood. Developed nations—“even the US”—reduced energy consumption in 2006, but energy demand has continued strong growth among emerging economies.
World’s cheapest car
That demand could grow even stronger with the Jan. 10 unveiling of the world’s cheapest car at the 9th Auto Expo in New Delhi—a four-door, five-seat automobile designed to sell for $2,500 vs. $4,000 for the current low-cost car available in India. Tata Motors, India’s largest automobile company and part of the Tata Group, India’s largest private sector conglomerate, spent 4 years developing the Nano or “people’s car,” primarily by eliminating many of the features that over the years have become standard on most modern autos, particularly those manufactured in Europe, Japan, and the US.
The Nano has no radio, power steering, power windows, tachometer, air conditioning, or other such comforts, of course, and its trunk can’t hold much more than a briefcase. It has only one windshield wiper and an analog speedometer that could be kilometers-per-hour less accurate that a digital unit. Using a hollow rolled-metal tube to connect its steering wheel to the steering system eliminates the extra cost and weight of a solid metal bar. It’s powered by a rear-mounted all-aluminum, two-cylinder 623 cc gasoline-fueled engine, producing a teardrop body shape that reduces wind resistance. Its continuous variable transmission, utilizing pulleys instead of gears, is sluggish but lighter and cheaper than manual or automatic units. Some parts of the car are held together by adhesives instead of metal bolts, and the use of lighter bearings and metals may mean the vehicle cannot withstand long or heavy use.
The company claims Nano’s tailpipe emissions pass India’s current requirements, although it doesn’t approach US standards. Still, company officials say it has a lower pollution level than the bipeds, scooters, and motorcycles that comprise the bulk of motor vehicles in India. Company officials claim its fuel efficiency ensures lower carbon dioxide emissions. But others doubt it can meet the Euro IV emissions standard that India’s major cities are to adopt in 2010.
Safety features aren’t up to Western standards but may be an improvement over the two-wheelers. Ratan N. Tata, group chairman, said he got the idea of a cheap car after observing families riding on two-wheelers—the father driving the scooter, his young child standing in front of him, his wife seated behind holding a baby.
World’s largest markets
India is now the second-fastest growing car market in Asia, after China.
With a population of more than 1 billion, India now has 12 motor vehicles per every 100 people. Tata expects the Nano to improve that ratio. Meanwhile, the Renault-Nissan combination is already planning an ultracheap car for that market as is the Indian-Japanese joint venture Maruti Suzuki. With the potential increase in the demand for oil and resulting pollution, Westwood advises, “Go see the Taj Mahal before it disappears in a cloud of exhaust.”
Meanwhile, China has a population of more than 1.3 billion people, but only 10 motor vehicles per 100. If a similar cheap auto were to be introduced into that market, the Great Wall also might fade from sight.
