China's problems worsen Asian oil demand slump

China's problems worsen Asian oil demand slump

LONDON (Reuters): China's oil demand growth has slumped,
dragging Asian consumption down, after the worst floods in 60
years amid currency worries, analysts said.

"The current plight of China does not help the region. Asia is
already experiencing a sharp decline in oil demand growth," said
Kang Wu, a China energy analyst at the Hawaii based East West
Center.

He added that China and India combined were likely to see oil
demand grow by 1 to 2 percent in 1998 while Japan was likely to
see a fall in its oil imports.

Japan accounts for nearly a third while China a fifth of total
Asia Pacific oil demand.

China, India, Japan and South Korea combined account for 70
percent of Asia Pacific demand.

Dennis Eklof, Senior Director for Asia Pacific, at Cambridge
Energy Research Associates in London, said Asian oil demand in
1999 was forecast unchanged or even 100,000 barrels below the
1998 forecast.

"Prior to the Asian currency crisis, projections for 1998 were
in the order of million barrels per day," he said.

"But during the crisis, forecasts were down to no growth or
even a decline of around 100,000 bpd on growth rates." The floods
in China would also hit demand growth, Eklof added.

Ken Miller, an analyst at Purvin and Gertz, projected demand
growth in China to slow to 3 percent this year, down from last
year's 15 percent. The company's latest estimate showed 1998 oil
demand at 4.15 million bpd, up slightly from 4.02 million in
1997.

Next year, oil demand was expected to rise by only 1.2 percent
to 4.20 million bpd.

Miller projected demand in the Asia Pacific region, including
China to fall to 19.25 million bpd in 1998 from 19.64 million bpd
in 1997 but to rise slightly to 19.77 million bpd in 1999.

China customs data released recently showed that crude imports
in the period January to July were up by 7.9 percent on a year
earlier at 19.12 million tonnes.

But the figures represented one of the sharpest drops in the
rate of increase in year-on-year import growth since China became
a net crude importer in 1996.

"The fall in the growth rate is placing doubts on whether
China can achieve its 8 percent GDP target for this year," said
Kang. "I think the government should revise its growth targets,"
he added.

China's state statistical Bureau said recently China's 1998
economic growth target of 8 percent remained attainable.

In the first half of 1998, Chinese economic growth fell to
7 percent, compared to the projected 8.8 percent per annum
growth, analysts said.

"Asia has lost about four to five years of growth," said
Eklof.

The Chinese floods have forced oil wells to shut, depriving it
of oil revenue and putting more pressure on the economy, already
slowing from a high exchange rate compared to its more
competitive Asian neighbors.

Official figures from China showed that the floods have cost
China $20 billion worth of damage, but some economists put the
figure at $30 billion to $36 billion.

More than 1,800 wells were shut in Daqing, China's largest
oil-producing region, and daily output was cut by 3,240 metric
tons during the floods.

In Liaoning, site of China's third largest oilfield, Liaohe,
daily output was cut by 750 tons. A total of 20,930 tons were
lost since August 10.

China said it did not need to import more oil as domestic
inventories were high. But the closure of oil wells meant a cut
in oil exports to neighboring countries and a lucrative source of
income.

"We have lost some oil revenues because of the floods which
would curtail our expenditure on imports," said a senior official
at state owned China National Petroleum Corp from Beijing.

"In addition, some plants and factories are closed and this
has also curtailed imports," the senior official said.

A contracting Japanese economy also threatens to punish Asian
oil demand growth further.

Miller at Purvin and Gertz forecast demand in Japan in 1998
to drop to 5.45 million barrels per day and at 5.59 million bpd
in 1999 -- a far cry from demand in 1996 at 5.75 million bpd
reached at the heights of its economic boom.

Oil demand in India has stayed relatively steady, analysts
said. But they said political uncertainties caused by economic
sanctions imposed by the United States and Japan following
India's nuclear tests in May may push demand forecasts down.

Hong Kong's economic troubles and South Korea's poor appetite
for oil would stem demand growth for the region further.
But longer term there could be light at the end of the tunnel.

"Next year, the situation may improve a little with recovery
expected in South Korea and Thailand but uncertainties in Japan,
China and India may offset the projected growth," Eklof said.