Oil price hits China demand
March 30, 2005
Societe Generale, France's third- largest bank by assets, said oil prices of more than US$50 (HK$390) a barrel are restraining fuel demand from China, the world's second-largest oil user.
China's demand growth for refined products slowed to 3.3 percent last month from 5.6 percent in January, 10.5 percent in December and 15.8 percent in November, according to Societe Generale's estimates.
``It is astonishing that the market does not seem aware that Chinese demand, the principal engine of global growth, is showing clear signs of running out of steam and especially that it clearly results from a price effect,'' wrote analysts Frederic Lasserre and Deborah White in a report.
``At US$50 a barrel, we have reached the price level which adjusts demand to supply.''
China led growth in global oil demand in the past two years, contributing to the 51-percent gain in the benchmark oil price in New York over the past 12 months. China has imposed lending and investment restrictions as it tries to slow growth to 7 percent from a seven-year high of 9.3 percent last year. New York oil prices have fallen almost US$4 a barrel since rallying to a record high of US$57.60 a barrel March 17 on concern demand would rise faster than producers can increase.
Companies in China still expect fuel sales to grow in the country. The China Petroleum & Chemical Industry Association has said the country's consumption of oil this year may rise 10 percent to 354 million metric tons because of demand for fuels.
China's reliance on imported oil will increase as local production isn't meeting the country's needs, said Tan Zhuzhou, the association's president.
The slowdown in China's fuel demand was strongest for heavy fuel oil, which is used as ship fuel and burned at power plants to generate electricity, Lasserre and White said.
``Because fuel oil is the only refined product to benefit from a liberalization in its imports, it is logically the one most sensitive to the increase in prices,'' the analysts said. China cut crude oil imports 1.6 percent in February to 10.4 million metric tons, the Customs General Administration of China said March 22.
Fuel oil imports declined 14 percent in February to 1.9 million tons.
Oil imports in the first two months of the year fell 12.7 percent to 18.2 million tons. China's government said in November it expects oil consumption growth to slow to 6.7 percent this year from 20 percent in 2004.
BLOOMBERG
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