Baltimore, MD--China has been riding an oil high since PetroChina announced its latest oil discovery at the Jidong oil field. And although China is popping the champagne cork and patting PetroChina on the back, the Chinese have forgotten the leak in the bottom of the barrel.

This morning I had an interesting chat. One of our readers was ecstatic over the massive oil discovery at the Jidong field in China. She went so far as to question the reality of peak oil.

"Did you hear they found over seven billion barrels in Bohai Bay?"

She started off without even a hello. I couldn't blame her.

"Yeah, that's really good news," I replied with a smile. When PetroChina raised the estimates to seven and a half billion barrels of oil equivalent, that made it the largest Chinese oil discovery in over forty years.

She's one of the few readers who have been a little skeptical about peak oil. Over the last year, I've felt the need to show her the truth. And I had been waiting to hear from her ever since the discovery.

"So this kind of shows us that peak oil isn't going to come for a long while, right? I mean, if we keep finding these newer fields, everything will be OK."

"Not exactly," I began gently. "The new discovery is great, don't get me wrong. But it's way too early to start ringing bells. In fact, over the weekend, I found myself in a similar position to China's."

I gave her a quick rundown of my weekend.

Despite all the great places in Baltimore for a bachelor's party, my friends decided to pack up and drive to Atlantic City last weekend. We soon arrived at our destination and made a beeline for the first casino in sight.

A few hours later, I found myself at an empty slot machine. The temperature was frigid and the drinks were free. How could I not enjoy myself?

After a while of pulling the handle, I finally hit it big. The light started flashing and I jumped out of my seat. I had just made $500 bucks in one shot! I was elated.

I took my winnings and felt like gloating to one of my friends. When I found my buddy, I started my victory dance--which is when he knocked me off my pedestal.

"Congratulations. Five hundred bucks, right? You do realize you're down two grand."

Peak Awareness

My reader didn't see the connection right away, so I had to explain myself.

You see, this new discovery at Jidong is huge for China, but similar to my lucky slot pull. The fact remains that that quick gain just masked my losses. In China's case, it's their growing oil consumption that outweighs their new discovery.

China's oil imports rose 23% in April compared to the same month in 2006. And their oil imports are quickly outpacing exports. Oil exports for the first four months of this year dropped roughly 55% compared to the same period in 2006.

China hopes to pump out about 200,000 barrels of oil from the new discovery every day by 2012. But that's assuming everything goes perfectly with the new field's development.

China's oil production is in a lot of trouble. Its largest onshore oil field at Daqing has been declining for years. Daqing produces about one million barrels every day.

Daqing Oilfield Company Limited, the operator of the oilfield, is trying to extend the field's life by cutting future production by seven percent annually. China expects Daqing to be producing only 800,000 barrels per day in just three years.

The Jidong discovery could be less easy to tap than expected, too. Experts are skeptical that the oil field will be as cheap to develop as China has stated.

And it is still too early to make accurate production forecasts for an oil field of this size.

My reader understood that China may have softened peak oil's impact a tiny bit, but they certainly haven't dodged the bullet.

Peak Profits

From her excitement, I could tell she wanted to invest in PetroChina, the company that made the discovery. But I couldn't stress it enough to her how disappointed she'd feel after throwing her money away like that.

When PetroChina released news earlier this month about the increased size of the Jidong discovery, its shares gained a healthy 14%. But the problem is that it took over 1.1 billion shares to move it. And the company hasn't come close to that volume since.

In fact, I think the company could even drop a bit over the next few weeks.

But that doesn't mean you can't turn a tidy profit in the oil market. Far from it.

Personally, I don't like the minimal gains to be made with the large oil companies. There's always a risk in investing, but I prefer companies that give us the opportunity to really rake in the profits. I mentioned to her that Pure Energy Report readers just gained 9% on their latest oil play . . . in only seven days!

And that play was only the tip of the iceberg. There's more to come . . .

Until next time,

Keith Kohl