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Chinese Oil Demand

Posted By Barry Ritholtz On May 16, 2004 @ 6:19 am In Finance | Comments Disabled

File this under “Hmmm!”

chinese_oil_demand “China’s exploding demand for oil — one factor that helped drive petroleum prices above $40 a barrel this week — has put energy markets at increased risk of disruptive price spikes and crashes, according to a study by an influential forecasting group.

Oil analyst Daniel Yergin, chairman of Cambridge Energy Research Associates and co-author of the study, said China has become a decisive but unpredictable player in world oil markets, because its fast-growing manufacturing economy is prone to sudden shifts in petroleum demand.

“China will be the most dynamic element in the oil market for several years,” Mr. Yergin said. China last year passed Japan to become the world’s second-largest oil market, after the U.S.”

There’s little doubt that as China’s economy cools, so will its demand for oil:

“China’s growing thirst for oil — plus strong demand for gasoline in the U.S. and fears of supply disruptions in the Persian Gulf — has driven oil prices to their highest levels since oil futures started trading on the New York Mercantile Exchange in 1983. The price for U.S. benchmark oil for June delivery settled at $41.08 Thursday, up 31 cents from Wednesday.

Iraq hasn’t yet repaired a sabotaged pipeline feeding its two offshore oil-export terminals, missing a target set by the country’s oil minister this week. The attack has cut Iraqi exports by 600,000 barrels a day, or almost a third.

Saudi Arabia, de-facto leader of the Organization of Petroleum Exporting Countries, is quietly asking ship brokers for extra tankers in the second half of next month to transport crude to the U.S., according to people in the Persian Gulf shipping business. The extra oil wouldn’t reach American shores until late July. Still, the move reinforces the kingdom’s call on OPEC this week to raise output quotas and echoes steps taken by Saudi Arabia in previous tight markets — including just before the U.S.-led invasion of Iraq last year — that helped damp prices.”

But as you can see by this chart, it appears that China’s central planners (those crafty capitalist commies!) are actually succeeding in slowing down their red hot economy:

china_m2

This is likely to play out in the near future as a China maintaining a fast growing economy — figure a GDP of 7.5% or so — instead of a 9+% GDP.

This suggests to me that — once again — the contrarian play (See Barron’s Big Money Poll [1]) will be the correct bet. Look for a peak in oil over the Summer.

Sources:
Chinese Oil Demand Puzzles Market [2]
Bhushan Bahree
Wall Street Journal
May14,2004;PageA6

http://online.wsj.com/article/0,,SB108448431588911131,00.html

Chinese Economy May Be Cooling [3]
Owen Brown
Dow Jones Newswires, May13,20049:27p.m.;PageA10

http://online.wsj.com/article/0,,SB108442500794310426,00.html

Charts courtesy of the WSJ


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2004/05/chinese-oil-demand/

URLs in this post:

[1] Barron’s Big Money Poll: http://bigpicture.typepad.com/comments/2004/05/money_managers_.html

[2] Chinese Oil Demand Puzzles Market: http://online.wsj.com/article/0,,SB108448431588911131,00.html

[3] Chinese Economy May Be Cooling: http://online.wsj.com/article/0,,SB108442500794310426,00.html

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