Commodities | Sep 15 2009
By Chris Shaw
Over the past few years the growth of the Chinese economy has been recognised by the market by it being ascribed a position of greater significance in commodity markets, one Barclays Capital suggests is undeniable with respect to metals but something less than absolute with respect to the energy markets.
This isn’t to say China is not influencing energy markets, as Barclays notes record refinery runs for the past five months mean the country’s oil imports have risen to record highs, which has been enough of a positive swing to global balances to offset some of the weakness in OECD demand.
It has been a similar story in coal as Chinese demand has been enough to offset a lack of supply side discipline from producers, Barclays pointing out Chinese coal demand so far this year is ahead of last year by 37 million tonnes. Natural gas demand has also been strong and hit fresh heights in July, but the point of interest for the group is in which commodity will this China impact be sustainable.
Coal appears an unlikely candidate given China has historically been a swing player in that market and has enough domestic resources to meet most of its energy needs in coming years. This leaves the gas and oil markets and here the story is different as Barclays notes reserves of both are not enough to meet domestic demand requirements.
Of the two the impact on the global market will be greater for oil in the group’s view as while demand for natural gas will grow more quickly than for other sources of energy, it is coming off a much lower base and so until it reaches critical mass the impact on the global market will be more muted.
In contrast Chinese oil fields appear to have passed their peak production capabilities, this at a time when strong increases in per capita income levels mean demand is increasing strongly, a trend Barclays expects will continue. This will force the country to continually increase its level of oil imports.
This becomes more significant for the global market balance given investment in the supply side of the oil market has been inadequate in recent years despite record high prices, particularly among non-OPEC producers, which has pushed the supply side into more dangerous territory.
Given this Barclays expects the Chinese effect on the global oil market in coming years will be to create more significant imbalances than in other energy markets.