NEW YORK, 15 May 2004 — China’s exploding demand for oil — one factor that helped drive petroleum prices above $41 a barrel this week - has put energy markets at increased risk of disruptive price spikes and crashes, according to a study by an influential forecasting group. Oil analyst Daniel Yergin, chairman of Cambridge Energy Research Associates and co-author of the study, said China has become a decisive but unpredictable player in world oil markets, because its fast-growing manufacturing economy is prone to sudden shifts in petroleum demand. “China will be the most dynamic element in the oil market for several years,” Yergin said. China last year passed Japan to become the world’s second-largest oil market, after the US.
China’s growing thirst for oil — plus strong demand for gasoline in the US and fears of supply disruptions in the Gulf — has driven oil prices to their highest levels since oil futures started trading on the New York Mercantile Exchange in 1983. The price for US benchmark oil for June delivery settled at $41.08 Thursday, up 31 cents from Wednesday.
New York’s main crude oil contract shot to a record high $41.56 a barrel yesterday. Light sweet crude for delivery in June surged 48 cents to $41.56 in early afternoon trade, shattering the previous record of $41.15 set in October 1990.
Iraq hasn’t yet repaired a sabotaged pipeline feeding its two offshore oil-export terminals, missing a target set by the country’s oil minister this week. The attack has cut Iraqi exports by 600,000 barrels a day, or almost a third.
Yergin and co-author Scott Roberts note that China’s oil consumption is expanding mainly because of the country’s huge and fast-growing manufacturing sector. Industry, which often relies on diesel-fueled generators, accounts for two-thirds of China’s primary energy demand. Though auto sales are booming, the overall number of autos still is relatively small. Industrial energy use is more susceptible to swings resulting from recessions and booms. Also, runaway growth has resulted in energy bottlenecks, such as interior transport by barge and truck, that could constrain manufacturing in China, which has become the world’s key supplier for a wide range of goods, the study said. China’s growth, and by implication its oil demand, thus could be more volatile than anticipated. China’s leaders are trying to rein in the country’s fast-growing economy. If they succeed, growth in oil demand could slow to about 7 percent in the second half this year from the estimated 13 percent growth of the first half, the study said. If policy makers fail and China’s economic bubble bursts next year, the study said, such a scenario “could be a surprising event for oil markets that are now betting on straight-line growth (in China).” China’s growth in oil imports could begin receding in 2004-2005 as quickly as it appeared in 2003, the study said.
