Chinese demand likely to surge

Beijing: China's apparent oil demand rose a tepid 2.4 per cent in October on a year ago, as record global crude prices led to diesel shortages, but demand should pick up further as Beijing has ordered firms to boost output and imports.

The yawning gap between global oil markets now racing toward $100 a barrel, and capped domestic pump rates has forced Chinese refiners to cut processing to stem losses, sparking a widespread shortage of diesel since early October.

Oil demand growth last month recovered from September's near-halt to 6.8 million barrels per day (bpd), Reuters calculations from official figures showed. But on a daily basis, October demand was 100,000 barrels below Sep-tember's level.

Rationing of main transport fuel diesel, which started in the booming east before spreading to inland regions in the worst shortage since 2003, forced Beijing to announce a surprise 10 per cent increase in gasoline and diesel prices from November.

The world's second-largest market should see oil demand accelerate in November and December, as powerful state refiners were seen finally bowing to Beijing's pressure after Premier Wen Jiabao recently urged them to boost supply.

"Demand will rise if refiners make good their pledges," said Yan Kefeng of Cambridge Energy Research Associates.

"Speculation for another price hike is still brewing. That should encourage stockpiling, which will also boost demand," he said referring to increased buying by independent refiners and dealers ahead of possible price increases.

In the 10 months through October, implied demand - net imports plus refinery output, but excluding unreported inventory changes - rose 7 per cent to 6.9 million barrels per day.

China has stepped up imports of diesel for November and December, and is set to bring in a total of 650,000 tonnes in the two months, a high level unseen for at least three years, traders told Reuters.

If the Chinese majors Sinopec Corp and Petro-China maximise production, the official throughput figure for November should be higher than October's 6.5 million bpd, the second-lowest since May, the National Statistical Bureau (NSB) has said.

But the NSB data did not capture production by scores of independent local refiners, called teapots, that make up nearly 15 per cent of the market when operating at normal rates.

These smaller plants, locally or privately owned, have in recent months cut throughput much more drastically or even shut in completely under the pressure of sliding margins, a key reason for the shortage, industry officials have said.

The 10 per cent November price hike should help recover some of these lost production, as many of them have raised their fuel prices by as much as 30 per cent, and so did independent petrol stations, oil officials and end users said.

"I'm sure they are back to life. You can see that in the fuel oil buying patterns recently," a state oil trader said.