Rising global oil prices are in part due to Chinas surging import needs to fuel economic growth and car ownership, a new report by Morgan Stanley says.
Chinas oil demand is now growing three times faster than during a power surge in the 1990s, said the reports author Andy Xie, an economist on China.
In the 1990s, global demand for oil was rising by about one million barrels per day every year. Today Chinese demand is now rising at that speed by itself,' Xie said.
He cited three factors behind Chinas rising oil demand.
First, the rapid rise in fixed investment. Fixed investment accounted for 43 per cent of Chinas GDP last year and is likely to account for 46 per cent of GDP in 2004. Thus, nearly half of Chinas GDP is growing at an annual rate of above 20 per cent in real terms.
Second, car sales are surging. Sales reached 4.5 million in 2003, up 30 per cent over 2002. This has a leveraged impact on oil demand, said Xie.
Thirdly, Chinas electricity shortage is forcing manufacturers to switch to diesel generators from grid supply.
Chinas imports of refined products were 31 per cent of crude imports in tonnage last year, the report said. China accounted for 31 per cent of the increased global consumption of oil between 1992 to 2002, Xie said.
It could account for over half of the oil demand growth in future and mainly for local consumption.'
I believe that Chinas oil consumption will double to 14 million barrels per day by 2014 from 7 million this year, unless China changes its energy policy dramatically. The problem with this forecast is that China couldn't afford the resulting high oil price.