As economic growth in China, India and other parts of the developing world take off, demand for oil will grow too. That's why economist Ed Yardeni of Oak Associates argues on his (subscription only) Web site today that a an M&A boom in the oil sector is on the way. "When sellers find motivated buyers, prices tend to go up. Now China is fighting with India to acquire PetroKazakhstan," says Yardeni. He believes this is "just the beginning" of an oil M&A boom that will last at least through 2006, boosting the shares of energy companies and investment banks. Yardeni also has been arguing of late that the price of oil itself is likely to peak soon because he believes that the rate of growth in China's oil consumption is leveling off. It isn't quite clear from his blog whether he's now suggesting that the rate of demand will continue to accelerate, or merely that the current level of demand for oil will be enough to drive the oil M&A boom.

China's CNOOC was blocked from buying Unocal because of U.S. political concerns. With Chevron taking control of Unocal, China's CNPC International is focused on PetroKazakhstan, a Canadian company. The price, already considered rich, is bound to go higher yet because the bidding for these assets is likely to continue.

Given the intensity of the demand for oil, and the huge amounts of cash that companies in Asia are sitting on, it may be just a matter of time before the idea of a Chinese-based company buying a U.S.-based oil company is retested.

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