Business | Oil & Gas
China's oil demand befuddles experts
Oil traders have long been accustomed to reading the tea leaves for clues to the true state of fuel consumption in China, but even the savviest analysts are being tested this year by a befuddling mix of signals.
- Reuters
- Published: 23:01 August 14, 2008
Beijing: Oil traders have long been accustomed to reading the tea leaves for clues to the true state of fuel consumption in China, but even the savviest analysts are being tested this year by a befuddling mix of signals.
An unexpected second month of weak crude oil imports reported on Monday gave fresh vigour to the bears, who read it as a signal that refiners had overestimated demand; bulls are still enraptured by surging diesel and gasoline imports, which they say may continue as industries resume operations after the Olympics.
Both could be wrong.
With major new refiners being started toward the end of this year, China's crude oil import growth should accelerate but its massive products stockpiling will slow, cutting fuel imports.
Between the rapidly shifting trade flows and the lack of transparency around inventory levels, which were built up substantially ahead of the Olympic games this month, traders will be hard pressed to determine whether a US-spawned economic slowdown is finally taking the wind out of China's sails.
That's a key question for oil markets that have risen sixfold in as many years, driven in large part by burgeoning Asian demand.
Some closest to the pump say the day has already arrived, nearly two months after Beijing surprised the nation with a near 18 per cent rise in subsidised gasoline and diesel prices.
"Demand is definitely coming off after the price hike. Among the worst hit is the transportation sector, which had been operating on razor-thin margins even before the increase," said Qi Fang, a long-time independent dealer who owns a dozen petrol stations in Hebei province, near Beijing.
"Americans were screaming at $4 per gallon petrol and they are using less now. Chinese petrol is only less than 20 per cent lower, how can we sustain these kinds of prices?" said Qi, adding that his firm's sales since July have dropped over half versus a year ago.
For the International Energy Agency (IEA), which on Tuesday maintained its forecast for China oil demand at 8 million bpd this year, up 5.6 per cent, the situation is far from clear.
"Despite having gone through half the year, China's demand trends remain remarkably opaque, posing a considerable risk to the demand forecast for H2," the IEA said in its report.
The unexpected seven per cent fall in China's July crude imports in data released on Monday, the steepest drop in three and a half years, helped drive prices below $114 a barrel.
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