What Goes Up Must Come Down

Just as the El Nino phenomenon is bandied about to explain away any weather disturbance, economic analysts these days impulsively attribute all major trends to the “Chindia” factor. However, the myth has again transcended the truth. And nowhere is this more apparent than in the discussion of oil.

China is indeed a trendsetter when it comes to most commodities, typically accounting for 25 to 30 percent of total demand in various base metals and bulk commodities. But on the oil front, the United States is still the 800-pound gorilla of that market; it consumes nearly 25 percent of the world’s total output, compared with 9 percent for China. India is far from being a major player in the commodity arena, accounting for no more than 5 percent of global demand for any major commodity and just 3 percent of the world’s oil demand.


To be sure, much of the incremental demand for oil in the past few years has come from the explosive growth in emerging markets such as China. However, over the past few months the uptrend in many commodities has been moderating. This suggests economic growth is coming off a boil, even in Chindia. Combined with increasing evidence of lower oil demand in the developed world, the implication is that the price of oil is really running on empty this year.

There are widespread signs that the surging oil price is leading to demand destruction in the largest consumer of oil