Boom Fuels Oil Demand in China

“But this welcome resurgence in economic activity brings to the fore the issue of securing the necessary supplies to sustain the recovery.”
Soaring global economic expansion, helped by explosive growth in China, is fueling the biggest increase in demand for oil in 16 years, according to the International Energy Agency (IEA).

In its latest monthly Oil Market Report, the Paris-based agency lifted its forecast for incremental oil demand in 2004 by 270,000 barrels per day (bpd) to 1.95 million bpd on the 80.6 million bpd world market.

As well as China’s economic boom swallowing huge streams of oil, a resurgence in other key global economies has put oil output and supply under pressure.

The IEA, which advises on energy-related matters to 26 industrialised countries, said its world growth forecast represents the largest absolute increase in global oil demand since 1988.

“Such steep growth is not incommensurate with a surge in the global economic recovery,” said the report. “But this welcome resurgence in economic activity brings to the fore the issue of securing the necessary supplies to sustain the recovery.” Publication of the report came as oil prices hit 13-year highs, breaking through the dollars 40 level – despite proposals from leading Opec producers for higher output limits.

The IEA report will add to fears that prices may soar further as trade in oil is now in its second quarter, which is traditionally the period when demand is at its lowest because of seasonality. Forecasts from the IEA are for world oil consumption to hit 82.5 million bpd by the fourth quarter. That is 3.8 million bpd more than present.

According to the agency, much of the extra fourth-quarter demand will need to come from inventories, leaving traders trying to calculate whether stocks are being built sufficiently during the second quarter to meet that demand. First-quarter demand data from Organisation for Economic Co-operation and Development countries showed oil usage was 580,000 bpd higher than estimated last month, led by increased use of transportation fuels.

In China, second quarter consumption is expected to rise by 20.9 per cent on an annual basis, or 1.08 million bpd, to 6.26 million bpd, after growth of 18.5 per cent in the first quarter, the IEA said.

While the IEA’s annual growth forecast for China is pegged at 750,000 bpd, indicating a much slower second half 2004 increase, it said the projection might prove too conservative.

“It is not expected that recent government measures to cool off economic expansion will result in significantly lower oil demand growth, regardless of their effect on the underlying economy,” the report said.

High prices are not fuelling the rising flows of oil expected from non-Opec countries. The IEA said non-Opec producers, other than Russia, are failing to pump as much as expected. The net result is an increased reliance on Opec for extra crude.

The IEA cut its 2004 forecast for non-Opec growth by 100,000 bpd to 1.2 million bpd.

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