Thursday, September 11, 2008

Distorted oil markets

Per the linked Reuters piece...

"China's nine-month auto fuel buying frenzy ahead of the summer Olympics helped lift global oil markets to records, but beleaguered bulls beware -- it could be years before conditions force it to launch another raid. With domestic inventories filled to the brim after a huge pre-Olympics stockbuild and amid signs of slackening demand growth, a return to the spot market appears remote for now. However, that risk may grow if refiners tap the brakes on investment due to low fuel prices set by the government. Demand in the United States, which consumes about seven times more gasoline than China, has only begun to slow this year, after retail prices nearly trebled from 2004...China's retail diesel and gasoline prices, closely regulated by a government anxious to avoid stirring any rural unrest, have increased only 70 percent over the same period. By the end of this year, China will increase its refining capacity by an estimated 740,000 barrels per day (bpd), more than enough to meet oil demand forecast to grow about 430,000 bpd, allowing refiners to bring imports to a quick halt. But traders have said China will return to a net exporter of gasoline and much thinner imports of diesel this month...After their last import binge in late 2004, refiners stayed away from spot markets for nearly three years, until last autumn's domestic shortage forced Beijing to arm-twist its state refiners into buying more product overseas..."China's policy was and still is to maximize domestic diesel production and stay away from imports," said Kang Wu of FACTS Global Energy in Hawaii...before any buying happens, suppliers will need to whittle down stocks that stand at twice year-ago levels and are proving difficult to shift amid signs of slackening demand growth...China's passenger car sales fell 6.24 percent in August from a year earlier to just below half a million units -- the first drop in more than two years and a sudden reversal from years of nearly unbroken double-digit sales growth."


-China's consumption is one seventh that of the US...even if growth rates of Chinese consumption were faster than the US, the increase in absolute demand would still be relatively small

-the Chinese government believes rural unrest could pose a significant threat to its existence, since it subsidizes fuel prices so heavily

-elimination by China of fuel subsidies would result in a sharp increase in end user prices, with a shift in consumption level inevitable

-Chinese growth in auto usage can decline or stagnate, and negative to flat growth is likely if a slowdown in GDP growth takes place

No comments: