Thu, 10 Mar 2005


U.S. agency significantly raises Chinese oil demand outlook

Associated Press New York

Chinese oil demand will grow by 33 percent more than previously forecast this year, as the expected drop in demand for fuel to run power generators hasn't materialized, the statistics arm of the U.S. Department of Energy said.

Most forecasters have expected Chinese oil demand growth to slow significantly this year from last year's searing pace, as new power plants are built and demand for diesel fuel to run generators falls off. But the power shortages are proving trickier to fix than expected, which will keep demand high and markets tight.

"People have been anticipating that the demand for burning diesel fuel for power would slow down," said Erik Kreil, the analyst responsible for the Energy Information Administration's China forecast. "So far, the data keeps saying, 'No, it's not slowing down."'

The EIA on Tuesday revised its forecast for 2005 growth in Chinese oil demand to 800,000 barrels a day, down from last year's pace of 1 million barrels a day but up from the 600,000 barrels a day in growth the agency forecast last month.

That strong demand, combined with a more pessimistic outlook for growth in oil production outside the Organization of Petroleum Exporting Countries, will keep oil markets tight and subject to price spikes through 2006, Kreil said.

The EIA, in its monthly Short Term Energy Outlook, boosted its forecast for oil prices, saying it sees benchmark U.S. prices in the mid- to high-US$40s through 2006.

"A lot of that is because Chinese demand is still strong," Kreil said. "As long as demand doesn't fall by 1 million barrels a day, this market's not going to loosen up."

The EIA sees oil demand growing by about 2 million barrels a day in 2005 and 2006, much faster than non-OPEC oil supply.

On Tuesday, the EIA cut its forecast for 2005 growth in non- OPEC supply to 600,000 barrels a day, down from a forecast of 900,000 barrels a day last month. The agency sees non-OPEC supply growing by 1 million barrels a day in 2006, down from 1.5 million barrels a day in its last forecast.

"It is emphasized that oil prices are likely to be sensitive to any incremental supply tightness that appears during periods of peak demand worldwide," the EIA said in the release. "Imbalances (real or perceived) in light product markets could cause light crude oil prices (such as West Texas Intermediate) to increase to well above $50 per barrel, as has recently occurred."

Oil prices rose to past $55 a barrel on Tuesday in New York.

China's power-supply problem is the result of broad difficulties with the reliability of the electricity grid, not just a lack of power plants, Kreil said. Bottlenecks and lack of access to the grid are keeping demand for on-site generators high.

The EIA thinks that demand will eventually be satisfied, but has pushed back the date. The agency sees Chinese oil demand growth slowing to 500,000 barrels a day next year, still a significant increase.

"The more we find out about it, the more it becomes apparent there won't be a sudden sharp slowdown to where it was," Kreil said of Chinese demand.

The EIA now sees the Chinese consuming 7.4 million barrels a day of oil in the third quarter and 7.6 million barrels a day in the fourth, up 200,000 barrels a day in each case. The agency also bumped up its first and second quarter forecasts for Chinese demand by 100,000 barrels a day.

The agency raised its forecast for 2005 world oil demand by 200,000 barrels a day, to 84.7 million barrels a day, mainly on the strength of the growth in China.

The EIA tinkered with its outlook for U.S. oil demand, trimming it in the first quarter and raising it for the rest of the year, with consumption seen averaging 21 million barrels a day in the second half.

The agency sees U.S. demand averaging 20.84 million barrels a day this year, up 10,000 barrels a day from its previous forecast.