China’s Oil Demand Tanks

More evidence is emerging that oil demand in China is fizzling – and that China’s economy is fizzling too.

The oil analyst Paul Ting emails that China’s December oil demand declined by 4 percent. This is the sharpest monthly demand decline in the past decade and the second consecutive monthly demand decline, Ting says. Ting notes that Chinese petroleum inventories have been increasing and that actual demand might have dropped by even more than 4 percent.
This is startling news because China was supposed to be the engine of growth for worldwide oil demand. Less than two years ago, in July 2007, the International Energy Agency was forecasting an increase of half a million barrels a day of oil demand in China every year through 2012. Earlier this month, the IEA predicted that China’s oil demand would grow 1.1 percent this year, or about 80,000 barrels a day.

This has important implications for the oil market. OPEC and other oil exporters have long assumed stagnant oil demand in the United States and Europe, but they have been counting on fast growth in emerging markets to fuel demand growth – and high prices.

Now one reason for a slowdown in Chinese oil demand is the elimination of subsidies in June last year. But greater fuel efficiency isn’t the only thing happening here.

Sagging Chinese oil demand provides further evidence that China’s economy has not just slowed down, but may actually be in reverse. China announced 6.8 percent growth from December 2007 to December 2008. But given how much faster the annual growth rate was early in 2008, simple math would indicate that the economy actually contracted late in the year.

Washington Post