Commodities | Mar 17 2010
By Chris Shaw
Over the past 10 years China has continually emerged as a key unexpected source of incremental demand for oil, which Barclays Capital notes has helped push up prices and erode any oil inventory overhang.
It is the extent to which Chinese oil demand has beaten expectations and pushed the oil price into new ranges that is so significant according to Barclays, as no other major consumer has an impact on the market that comes close to that of China.
As an example of this impact, Barclays estimates in 2009 global oil demand fell by 1.57 million barrels per day, weaker OPEC demand being the major contributor. The fall was partially offset by a 0.54 million barrels per day increase in non-OPEC demand and of this increase Barclays suggests China accounted for as much as 76%.
What this shows in its view is market estimates for growth in Chinese oil demand have been far too conservative, with recent months seeing significant upward revisions to previous estimates.
Last June Barclays was forecasting Chinese oil demand growth for 2009 of around 0.20 million barrels per day, but the strength of demand saw this increased this month to 0.41 million barrels per day. Over the same period the International Energy Agency lifted its forecast from minus 0.03 to 0.11 million barrels per day and the OPEC Secretariat from 0.02 to 0.22 million barrels per day.
In the first part of 2010 Barclays notes Chinese oil demand has continued to surge above even these revised figures, growing by an average of 1.4 million barrels per day through January and February. This compares to an average increase of 1.1 million barrels per day between October and December last year.
This leads Barclays to suggest consensus forecasts are falling behind in terms of factoring in the full extent of the latest jump in Chinese demand, meaning future upward revisions are likely even if there is a moderation in the speed of this growth.
Barclays assumes a slowing in the rate of growth over the full year, but even allowing for this it is forecasting above consensus demand growth of 0.57 million barrels per day this year. This leads it to conclude China is a likely potential source of upward demand risk through 2010.
