BALTIMORE, MD-The $20 drop has given consumers a false sense that the parabolic rise in oil prices is over. This couldn't be further from the truth. While it's likely we'll continue to see some weakness in the sector over the next few months, the long-term fundamentals are still in place that could propel oil prices over the magical $100 mark.

To strengthen political coalitions and voice their dismay against the rising popularity of the Democratic-Republican Party, Alexander Hamilton and other members of the Federalist Party, including Robert Troup and Oliver Wolcott, founded the New York Evening Post in the autumn of 1801.

This newspaper is still in print to this day, making it the oldest continually published daily paper in the U.S. The publication, however, has experienced an acute shift in focus over the decades. The once politically-fueled broadsheet has become a tabloid rag we know today as the New York Post.

Hamilton must certainly be rolling in his grave.

So I guess I'm not too surprised that my B.S. detector went on full alert last weekend when I read this headline in the Post. In big, bold capital letters, it said:

THE WORST COULD BE

OVER FOR HIGH

OIL PRICES

Seriously?

Are there still folks around who are blind to the fact that the end of cheap oil is already upon us?

I suppose the answer to that question is clear.

Paul Tharp, author of the article, reports:

The economy-wrecking nightmare of skyrocketing oil prices may be coming to an end, with cheaper $50-a-barrel oil becoming the norm through springtime. [. . .] Hair-trigger trading-which had threatened in the summer to send crude soaring to $100 a barrel-has become virtually obsolete almost overnight as investors have grown immune to bad news. Investors are also wary of getting burned on rapid swings in oil prices-usually fanned by fickle geopolitical events ranging from failed suicide terrorist attacks on Saudi refineries to rallies of noisy Hamas thugs. Even wholesale slaughter in hotspots like Iraq don't make the impact on oil traders the way the horrific events once did.

Now, there's no arguing that adverse news-whether it be attacks on pipelines, nuclear ambitions of rogue states, hurricanes, industry nationalization by producing countries, or any number of matters that usually weigh significantly upon oil prices-just doesn't have the pumping effect it once did.

Here's the proof . . .

In the past two weeks there have been three major attacks on Nigerian oil facilities. Take a look:

Explosions Hit Oil Company Facilities in Southern Nigeria

-December 18, 2006 (AP)

Rebel Attack on Oil Facility in Nigeria Leaves 3 Guards Dead

-December 21, 2006 (AP)

At Least 45 Die in Nigeria Oil Pipeline Burst

-December 26, 2006 (DPA)

News stories like these used to have a positive effect on crude. Yet oil prices in the past couple of weeks have been on the slide.

Why?

Well, the fact is, these types of predicaments-and many other concerns, including those I mentioned just a second ago-were apparently priced heavily into the July 14 record oil price of $81.24 a barrel. Since that time, overanxious investors have been selling into the market, shedding this premium.

But the recent price fall doesn't change the big picture and shouldn't scare us away. The fact is, world oil production may very well already have peaked. Yet by most accounts, global oil demand will continue to grow some 40% until 2030m, and the fundamentals behind rising oil prices are still in place.

Let's quickly take a look at the China situation . . .

China's crude oil imports are expected to surge again this year while, exports will continue to fall as a result of market demand and trade policy adjustments.

A report from the Ministry of Commerce says that China's 2006 crude imports totaled 140 million tons, with exports coming to 7.4 million tons. In 2007, crude imports are expected to increase nearly 3% to 144 million tons, while exports will fall over 21.6% to 5.8 million tons.

Robust GDP growth has forced China to depend more on imports because of limited domestic production. The National Development and Reform Commission, China's top economic regulator, says that the country's annual GDP could reach 20 trillion yuan (US$2.55 trillion) this year, with a year-over-year growth of 10.5%.

Like many countries around the world, China is forced to look elsewhere for its oil supply. Currently the country is aggressively seeking overseas energy assets to run its booming economy.

On Sunday, CITIC Group of China, one of the country's biggest conglomerates, announced that it shelled out US$1.91 billion for the Kazakhstan oil assets of Canada's Nations Energy Company.

This is only one of thousands of deals made every year to secure energy assets. Sooner rather than later, all these assets will be tied up.

While oil prices may continue to trade flat for the next few months, the worst-or best, if you're invested in the sector-is hardly over for oil prices. Mark my words, $100 is still on its way.

Until next time,

Luke Burgess