China Wants More Oil

Think gasoline prices are coming down this year? Think again.  Between supply constraints, the usual suspects in the Middle East, and China, oil demand is seen hefty enough to keep prices stable to high for the foreseeable future.  In fact, China’s oil demand is seen rising by 5% this year on the backs of an economic recovery.
Faster-than-expected economic growth could raise fuel demand even higher than market estimates, if car sales and property sales continue on their positive trend lines. A government stimulus program on infrastructure also remains a possibility when the new leadership formally assumes power at the March legislative meetings, Barclays Capital noted recently.

Upside Surprise Possible In China Oil

China’s oil demand staged a sharp rebound in the fourth quarter of last year, reaching a historical high of 10.6 million barrels a day in December, after languishing near the 9 million per day mark during the summer. Strength into the year-end propelled fiscal year 2012 oil demand to 9.6 million a day, 360,000 higher than the same period a year ago.

Barclays pointed out in a report on China energy demand back in October that improving industrial activities and new refining capacity in China are fueling the pick up in demand.  Since then, China’s headline data have confirmed a revival of manufacturing activities, and now Barclays analysts in London and Singapore expect China’s oil demand to grow by 480,000 barrels daily in 2013, or roughly 5% from 2012 levels.

Fourth quarter data could be skewed by seasonality. Stock building, the concentration of new capacity additions to fourth quarter 2012 and an unusually cold winter likely helped push up refinery runs. While real demand by companies and residences was softer, evidenced by increased exports. As industrial activities are likely to stay muted in the first quarter, real oil demand may hit a soft patch before picking up again in the second, Barclays analysts led by Sijin Cheng in Singapore wrote in an 11 page report dated Feb. 6.

Nevertheless, there is more upside than downside to China oil watchers.

Oil demand is recovering along with industrial activities growth, most accurately reflected in power generation. The PMI index has risen from 49.2 in August 2012 to 50.6 in December 2012, confirming that manufacturing has been expanding and driving a modest recovery. Property sales are rising and housing construction began to gain momentum from a low base by the second half of the year.

“We expect an improvement in industrial activities and continued additions of new refining capacity to lift Chinese oil demand,” says Chen.  ”A faster-than-expected rebound could of course present an upside risk to that forecast.  A slew of new and potential government policies, on the other
hand, could also affect oil demand, with an upside surprise more likely on balance.”

Forbes