How China and Saudi Arabia Mean You Should Bet on Higher Oil Prices

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As Money Morning Global Energy Strategist Dr. Kent Moors pointed out not long ago, the sky is not falling on oil prices despite what the doomsayers believe.

There are two crucial countries that are behind the recent rise in oil prices: China and Saudi Arabia.

And if these two nations keep on their current path, it will mean one thing…

Even higher oil prices in 2013. Here's why.

How China Will Move Oil Prices

China is usually the gorilla in the room when it comes to commodities demand, including for oil.

A recovery in oil demand from the world's second-biggest economy can be seen in the latest statistics from China.

The fourth quarter of 2012 saw a sharp rebound in China's thirst for oil. Demand hit a historical high in December at 10.6 million barrels a day. Demand during the summer languished at about 9 million barrels a day.

This year started strongly, too. January saw China import crude oil at the third-highest rate on record.

Oil demand for all of 2013 is expected to rise by 4.8%, according to a research institute affiliated with China's largest energy producer, China National Petroleum Corporation (CNPC). The researchers pointed to China's economic rebound as the key factor.

Analysts from Barclays in London and Singapore agree with this assessment. They are forecasting a jump in Chinese oil demand this year of roughly 5%, or an additional 480,000 barrels a day.

Lead Barclays analyst Sijin Cheng said in a recent report that "a faster-than-expected [economic] rebound could present an upside risk to that forecast." Cheng added "an upside surprise [was] more likely on balance."

Of course, China is only the demand side of the equation.

The Supply Side of the Oil Prices Equation

There is also the supply side, where Saudi Arabia continues to hold the key to the direction of global oil prices.

Last summer, when Brent crude oil prices were pushing $120 a barrel, Saudi Arabia came to the rescue and began pumping nearly 11 million barrels a day.

But at the end of 2012, thanks largely to what the Saudis were seeing from the shale oil fields of the United States, Saudi Arabia drastically cut its oil production. January saw oil production from the kingdom at only around 9.25 million barrels a day.

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