China's Oil Needs Keep Rising For Trucks, Industry, Stockpiles
Investor's Business Daily ^ | 06/11/08 | Reinhardt Krause
Posted on Wednesday, June 11, 2008 7:32:52 PM by TigerLikesRooster
China's Oil Needs Keep Rising For Trucks, Industry, Stockpiles
Reinhardt Krause
1 hour, 37 minutes ago
Beijing's Summer Olympics, Sichuan's 7.2-magnitude earthquake in May and a buildup in strategic petroleum reserves put China's always difficult-to-discern oil demand even more in the dark.
China has become the world's second-largest oil consumer after the U.S. as its people drive more cars and its factories produce steel and other energy-intensive goods.
Despite China's growing role in global consumption, its actual demand for oil remains a mystery. In May, the U.S. urged China to join the International Energy Agency to help calm oil markets.
U.S. agencies, think tanks and market researchers rely on Chinese government statistics and GDP-related estimates to gauge oil demand. This year, China's freak winter storms, the May 12 earthquake and the Summer Olympics have further clouded forecasts.
China's strong diesel demand spiked after the quake as the government fired up backup power generators. Beijing plans to substitute diesel for coal in power plants near the capital some 45 days before the Olympics to reduce pollution, says a Lehman Bros. report.
And, China has stockpiled oil products for transportation needs during the Olympics, analysts say.
Some argue the Olympics impact on demand has been overhyped.
"The games won't have a meaningful impact on 2008 oil demand," said Trevor Houser, energy analyst at the Rhodium Group. Rhodium sees China's demand rising 7% to 7.5% this year vs. 5.2% in 2007.
IEA on Tuesday upped its 2008 China oil demand forecast to 5.5% growth from 4.9%, citing the quake and rebuilding efforts.
The forecasts are largely guesswork because state-owned oil companies, such as PetroChina (NYSE
TR - News) and Sinopec (NYSE:SNP - News), don't report stockpiles.
The oil firms drew down inventories as prices rose last year but seem to be restocking, analysts say.
"China does not release corporate inventory data, which creates volatility in the market," Houser said. "Part of the reason apparent Chinese oil demand has bounced between 2% and 17% over the past five years -- accounting for anywhere between 15% and 60% of global demand growth -- is because of inventory builds and draws that are opaque to the market."
He says global oil markets would be more stable if China released inventory data, perhaps via joining IEA. But, Chinese oil companies influence government policy and would resist disclosure, he says.
China shows no signs of lifting gasoline price caps that buoy demand, unlike India, Indonesia and Malaysia. The government doesn't want to inflame inflation, already at 8.5%.
After May's quake, China released strategic fuel reserves to aid in relief efforts. The amount was small -- less than what Sichuan province uses in a day -- but drew attention to the little-known program.
While adding reserves could put upward pressure on global oil prices, its impact thus far has been small because China is still building storage facilities, analysts say.
"It's a known factor in the market, but it's one of many," said Addison Armstrong, director of market research at Tradition Energy, a Houston-based commodities broker.
Facing overwhelming congressional pressure, the Bush administration said in May it would halt deliveries to the Strategic Petroleum Reserve for the rest of 2008. The U.S. has been adding to the SPR since 2001.
China seems intent on filling up its reserves, despite soaring oil prices.
In February, China filled the first of four planned above-ground storage tanks. The site, in Zhejiang province south of Shanghai, stores a reported 32 million barrels of oil.
China aims to stockpile reserves to meet domestic demand for some 25-26 days, says Yan Kefeng, a Beijing-based analyst with Cambridge Energy Research Associates.
That's down from a 35-day goal set in 2004, because China's consumption has grown to about 8 million barrels a day. China will use over 10 million a day by 2012, IEA estimates.
While China and the U.S. would both benefit from stabilizing the oil market in a crisis, Beijing also has military reasons for its reserves.
About 80% of China's oil imports pass through the Straits of Malacca. China fears the U.S. would cut off its oil supply if a war over Taiwan broke out, says a Harvard University study.
China also worries that the U.S. could use oil inventory data strategically, some analysts say.
China's crude oil imports leapt by 25% in May to their second-highest ever, reversing a rare fall in April as refiners restocked supplies.
Trucks have been at the heart of China's soaring diesel demand. Truck sales in China have jumped 25% in 2008, says Merrill Lynch.
Gasoline accounts for just 17% of China's fuel needs vs. 45% in the U.S.
Investment in heavy industry has been the biggest factor in China's energy use, says Houser.
"Chinese oil demand is so much higher today than most analysts estimated five years ago, not so much because the economy grew faster or people bought more cars, but because an investment surge changed the structure, and thus energy-intensity of economic growth," he said.
If China's export growth slows further, its oil demand to produce and distribute industrial goods could fall sharply, says a Lehman report. Lehman expects a post-Olympic slump in China's oil use.
Investor's Business Daily ^ | 06/11/08 | Reinhardt Krause
Posted on Wednesday, June 11, 2008 7:32:52 PM by TigerLikesRooster
China's Oil Needs Keep Rising For Trucks, Industry, Stockpiles
Reinhardt Krause
1 hour, 37 minutes ago
Beijing's Summer Olympics, Sichuan's 7.2-magnitude earthquake in May and a buildup in strategic petroleum reserves put China's always difficult-to-discern oil demand even more in the dark.
China has become the world's second-largest oil consumer after the U.S. as its people drive more cars and its factories produce steel and other energy-intensive goods.
Despite China's growing role in global consumption, its actual demand for oil remains a mystery. In May, the U.S. urged China to join the International Energy Agency to help calm oil markets.
U.S. agencies, think tanks and market researchers rely on Chinese government statistics and GDP-related estimates to gauge oil demand. This year, China's freak winter storms, the May 12 earthquake and the Summer Olympics have further clouded forecasts.
China's strong diesel demand spiked after the quake as the government fired up backup power generators. Beijing plans to substitute diesel for coal in power plants near the capital some 45 days before the Olympics to reduce pollution, says a Lehman Bros. report.
And, China has stockpiled oil products for transportation needs during the Olympics, analysts say.
Some argue the Olympics impact on demand has been overhyped.
"The games won't have a meaningful impact on 2008 oil demand," said Trevor Houser, energy analyst at the Rhodium Group. Rhodium sees China's demand rising 7% to 7.5% this year vs. 5.2% in 2007.
IEA on Tuesday upped its 2008 China oil demand forecast to 5.5% growth from 4.9%, citing the quake and rebuilding efforts.
The forecasts are largely guesswork because state-owned oil companies, such as PetroChina (NYSE
The oil firms drew down inventories as prices rose last year but seem to be restocking, analysts say.
"China does not release corporate inventory data, which creates volatility in the market," Houser said. "Part of the reason apparent Chinese oil demand has bounced between 2% and 17% over the past five years -- accounting for anywhere between 15% and 60% of global demand growth -- is because of inventory builds and draws that are opaque to the market."
He says global oil markets would be more stable if China released inventory data, perhaps via joining IEA. But, Chinese oil companies influence government policy and would resist disclosure, he says.
China shows no signs of lifting gasoline price caps that buoy demand, unlike India, Indonesia and Malaysia. The government doesn't want to inflame inflation, already at 8.5%.
After May's quake, China released strategic fuel reserves to aid in relief efforts. The amount was small -- less than what Sichuan province uses in a day -- but drew attention to the little-known program.
While adding reserves could put upward pressure on global oil prices, its impact thus far has been small because China is still building storage facilities, analysts say.
"It's a known factor in the market, but it's one of many," said Addison Armstrong, director of market research at Tradition Energy, a Houston-based commodities broker.
Facing overwhelming congressional pressure, the Bush administration said in May it would halt deliveries to the Strategic Petroleum Reserve for the rest of 2008. The U.S. has been adding to the SPR since 2001.
China seems intent on filling up its reserves, despite soaring oil prices.
In February, China filled the first of four planned above-ground storage tanks. The site, in Zhejiang province south of Shanghai, stores a reported 32 million barrels of oil.
China aims to stockpile reserves to meet domestic demand for some 25-26 days, says Yan Kefeng, a Beijing-based analyst with Cambridge Energy Research Associates.
That's down from a 35-day goal set in 2004, because China's consumption has grown to about 8 million barrels a day. China will use over 10 million a day by 2012, IEA estimates.
While China and the U.S. would both benefit from stabilizing the oil market in a crisis, Beijing also has military reasons for its reserves.
About 80% of China's oil imports pass through the Straits of Malacca. China fears the U.S. would cut off its oil supply if a war over Taiwan broke out, says a Harvard University study.
China also worries that the U.S. could use oil inventory data strategically, some analysts say.
China's crude oil imports leapt by 25% in May to their second-highest ever, reversing a rare fall in April as refiners restocked supplies.
Trucks have been at the heart of China's soaring diesel demand. Truck sales in China have jumped 25% in 2008, says Merrill Lynch.
Gasoline accounts for just 17% of China's fuel needs vs. 45% in the U.S.
Investment in heavy industry has been the biggest factor in China's energy use, says Houser.
"Chinese oil demand is so much higher today than most analysts estimated five years ago, not so much because the economy grew faster or people bought more cars, but because an investment surge changed the structure, and thus energy-intensity of economic growth," he said.
If China's export growth slows further, its oil demand to produce and distribute industrial goods could fall sharply, says a Lehman report. Lehman expects a post-Olympic slump in China's oil use.