Thanks to China, this oil shock really is different

In the base oil market we now have a global situation of relatively fixed supply, at least in the short to medium term; and a renewed strong but, more potently, sustained rise in demand.

All the supposed fiddling and forward-market dynamics aside, that is the single explanation for the leap in the basic crude oil price. Since man, non-gender-specific, first walked the earth, if demand for something exceeds supply, the price rises.

And, just as surely, the price rise is the mechanism for both reducing demand and boosting supply; and, if allowed to work, will bring about a fall in the price. Part or all of the Middle East disappearing under one or more mushroom clouds, most forcefully, aside.

Now the explosion in the number of gas-guzzling four-wheel-drive SUVs in the US has made some contribution to that rising demand. And why has this happened, macho fashion aside? In large part because of artificial tax breaks given to both imported and domestically produced SUVs – demonstrating how everything these days is connected.

But the single biggest factor in the growth in demand has of course been China. Since the late 1990s, China has been responsible for about one-third of the rise in global oil consumption. It now consumes about 8 per cent of total global oil use.

The Australian