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11/22/2024 06:18:05 am

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Experts: "Don't Blame China for Plunging Oil Prices"

Full Barrels

(Photo : Wikimedia/Trevor MacInnis) Experts have said China's strong demand for crude and gasoline provides the sole bright spot for an otherwise dismal market.

China consumed a record 10.32 million barrels of oil each day last year, according to preliminary calculations issued on Tuesday by Reuters.

In the past weeks, traders and investors have looked to China's stumbling economy to explain the decline in global oil prices.  They said anxieties over the future of the world's second largest economy have rattled investor confidence and infected the oil markets.

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These fears were apparently unfounded.

China's slowing economy has not slaked its thirst for oil as the country's economic engines guzzled down more than a quarter of a million more barrels of oil each day last year than they did in 2014.  Experts in fact say China's strong demand for crude and gasoline provides the sole bright spot for an otherwise dismal market. 

US crude prices fell below $27 a barrel Wednesday behind excessive global supplies, the lowest in 13 years.  The decline saw the Dow fall by some 249 points. 

Daniel Ang, an investment analyst at Philip Futures in Singapore, says China's demand for oil is likely to buoy worldwide oil prices this year despite the pervading bearish sentiment. 

"Just looking at oil demand alone for China, it's likely to remain strong or at least grow at the same pace has it has been," Ang told Reuters.

Building up Reserves

Ang's opinion is shared by the Organization of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA). Both organizations expect China's demand for oil to grow by about three percent this year. 

Much of that growth is expected to spring from the country's need for ample oil reserves.  China maintains about 24.6 billion barrels of proved oil reserves, which is the highest in the Asia-Pacific region, excluding Russia. 

Even so, the Chinese are at the moment taking advantage of cheap oil prices to build up the country's strategic stockpile of petroleum reserves, as wealthy countries have done for decades. 

The consultancy firm Energy Aspects tells Foreign Policy Magazine that China will probably purchase another 150 million barrels of oil for commercial and government reserves. 

Experts have maintained that China's demand for extra oil is likely to last through the year. 

It's about Jittery Traders, Not Chinese Policymakers

If the demand for oil in the world's second largest economy does indeed remain strong, analysts say it could help oil prices stage a comeback next year.

Antoine Halff of Columbia University's  Center on Global Energy Policy told the US Senate's committee on energy on Tuesday that the oil market is bound to correct itself, and warned that the correction may again catch jittery traders and investors off guard.  

"Some of the very factors that pushed [oil] prices down in the last 18 months will cause them to rebound in the next 18 months," said Halff. "And just as on the way down, the price swing upward may again surprise market participants with its speed, scope and duration."    

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