Oil climbs as watchdog predicts soaring China demand

Oil climbs as watchdog predicts soaring China demand

Reuters, Singapore

Oil prices rose on Thursday, ending a three-day run of losses as the West's energy watchdog upgraded its forecast for global demand growth for this year, with booming China accounting for almost one-third of the rise.

U.S. light crude traded 30 cents higher to US$36.40 a barrel, retracing 26 percent of the $1.16 lost in the first three days of the week.

London's Brent crude climbed 35 cents to $32.34 a barrel.

In its latest monthly report, the International Energy Agency (IEA) raised its forecast for world demand growth this year by 220,000 barrels a day (bpd) to 1.65 million bpd, saying China's soaring economy was driving up consumption faster then expected.

The Paris-based agency, which advises 26 industrialized nations on energy policy, said consumption would hit 80.2 million bpd in 2004, with China providing 580,000 bpd of incremental demand, almost double its previous prediction.

"While the sustainability of China's rapid growth rates remains a matter of debate, structural shifts in Chinese oil demand set the stage for continued expansion," the IEA said in its March report.

The IEA estimated that Chinese oil demand in January hit a record 6.09 million bpd, second only to the United States.

But it warned that producer policy, keeping inventories tight with output restraints, was encouraging investment funds to speculate on continued high prices.

"Actions that promote tight balances in the face of geopolitical uncertainty, limited spare production capacity and constrained refining capacity provide opportunities for speculators," it said.

The OPEC producers' cartel, which controls about half of world crude exports, agreed last month to chop one million bpd from official output limits from April 1 to avoid any supply glut and potential price collapse in the second quarter.

The IEA said the policy was partly to blame for making world oil markets "more fragile than normal" during the transition between peak winter and summer demand.

It also warned that any slight disruption to supplies from No.5 oil exporter Venezuela would severely test the United States, the world's biggest consumer, where wafer-thin fuel stockpiles have raised worries of a possible supply crunch.

Political tensions have been rising in Venezuela, which has seen violent protests in recent weeks by those opposed to President Hugo Chavez. In 2002, a nationwide general strike by opposition-led forces brought Venezuelan exports to a virtual standstill.

"Even a short-term supply disruption here could pose serious challenges," the IEA report said.