Questions over impact of China demand on global oil market

04 November 2009 13:29  [Source: ICIS news]

SINGAPORE (ICIS news)--A pick-up in Chinese demand has been hailed as a sign of economic recovery and is seen as a significant factor contributing to the recent rise in crude prices, but speakers at an industry conference on Wednesday questioned its impact on the global oil market.

Speakers were at the 25^th annual Asia-Pacific Petroleum Conference (APPEC 2009) in Singapore.

Part of the increase in the International Energy Agency’s (IEA) demand growth projections for China in 2009 and in 2010 was due to increases in China’s strategic and commercial inventories of crude and products, according to Jason Freer, Asia-Pacific manager for Petroleum Argus.

The IEA raised its demand growth projections for China in 2009 by 410,000 bbl/day to 8.3m bbl/day and in 2010 by 340,000 bbl/day to 8.6m bbl/day amid forecasts of a robust rebound in the Chinese economy.

Chinese refinery runs have increased, said Freer, but a lot of the output is being exported.

In fact, he said, China has moved from an importer of diesel to an exporter. 

Despite reports of high levels of automobile sales in China, there has not been an expected sustained increase in gasoline demand, Freer noted.

Instead, with export markets weak, China has increased its stocks of gasoline, Freer said.

Fuel oil demand in China has also not recovered, according to Freer.

Small teapot refineries, which used fuel oil as a feedstock, have closed amid competition from state-owned refiners that have expanded refining capacity, he said.

There is also a greater use of coal power generation, Freer said, while there has also been less demand from the industrial sector.

According to Edward Morse, managing director of Louis Capital, the IEA’s expected rebound in China’s oil demand cannot distinguish between stocks and consumption.

Morse said that China alone cannot tighten global oil markets.

Strategic storage and logistics requirements have bolstered Chinese oil demand, Morse said.

However, rising Chinese distillate and gasoline exports have weakened global product balances, Morse added.

Freer said there were some positive signs from China. He noted that naphtha imports into China have increased, which might indicate the start of export growth in downstream petrochemicals.

However, Freer said, it could also be attributed to more naphtha going into gasoline production.

Other positive developments included some improvement in the China’s air-travel sector, with more passenger miles and international flights reported, Freer said.

Power demand in China was also increasing, he said.

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By: James Dennis
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