China can't take all the blame for booming oil demand; there is plenty to go around.
For some weeks now, analysts have pointed to stunning levels of growth in China's oil consumption as being the primary demand-side driver behind high oil prices, along with all of the supply-side fears.
While the US also has been cited often in discussions of demand, clearly, the "elephant in the room" has been China's jaw-dropping demand growth rate of as much as 14% year to year (as measured in IEA's May report).
In fact, a new trepidation has begun to emerge among market-watchers: that China's own efforts to cool down a superheating economy might kick out the props from under a bull market for oil demand.
Widespread demand growth
But the International Energy Agency contends that fears of a Chinese consumption growth slowdown should be moderated by a broad economic recovery in other regions.
In its June market report, IEA jacked up its forecast for 2004 world oil demand growth to 2.3 million b/d, an increase of 360,000 b/d from the previous month's forecast. It also would be the biggest year-to-year increase in oil demand since 1980. IEA estimated total global oil consumption this year will average 81.1 million b/d, an increase of 2.9% on the year.
After several months of citing China's surging oil demand, IEA this time said, "New March data show demand surged in Brazil and India, helping to lift world growth in the first quarter by 340,000 b/d. The second quarter growth estimate has been revised upwards by 900,000 b/d to 3.5 million b/d in light of strong [former Soviet Union] and North American spring demand."
The agency noted the strong worldwide growth pattern will contribute to a bullish outlook for oil prices this year.
Jacques Rousseau, analyst with Friedman Billings Ramsey Inc., Arlington, Va., concurs: "This [forecast] is in line with our view that rising global crude oil demand, along with supply disruption fears, will continue to support strong crude oil prices, especially once we exit the seasonally weak second-quarter demand."
Non-OPEC vs. OPEC
At the same time, IEA projections for 2004 supply growth from countries outside the Organization of Petroleum Exporting Countries haven't budged from an earlier forecast of 1.2 million b/d.
And that's despite ambitious projections by some non-OPEC nations. Kazakhstan, for example, is forecasting a 19% increase this year in the nation's oil output, to 1.07 million b/d. One of the FSU members cited as a stalwart in the region's oil production growth, Kazakhstan has targeted an output of 3.5 million b/d by 2015.
Rousseau contends that the combination of new non-OPEC supply and OPEC NGLs will add up to a level of 700,000 b/d less than IEA's new global oil demand forecast, "which should provide OPEC with additional flexibility to balance the market and maintain high crude oil prices."
OPEC already is testing that flexibility, even ahead of its predictable Beirut meeting agreement that merely validated existing production over quotas and ignored clear signals from some members that the market would be supplied irrespective of quota levels. Total OPEC crude supply jumped by 470,000 b/d in May, to more than 26.1 million b/d.
Accordingly, IEA hiked its estimate for the call on OPEC crude plus stock change by 500,000 b/d for the full year, to 26 million b/d in August. And the closeness of the totals for both crude supply and the call on OPEC crude speaks volumes about why scarcely anyone these days expects to see oil prices collapse—at least this year, anyway.
"Given the IEA's rising [estimate of] global crude oil demand growth, which should exceed the new 2004 non-OPEC supply forecast, OPEC appears to be in the enviable position of being able to realize high production volumes (above their unofficial floor of a 30% global market shareU) and high pricesU.," Rousseau said.
Or as we say in these parts: Make hay while the sun shines.
Unfortunately, there are also dark clouds in that weather outlook—and they all hover over fears of potential supply disruptions. And if $40/bbl oil won't squelch such buoyant global demand, $50/bbl probably will put a pretty big dent in it.
(Online June 14, 2004; author's e-mail: [email protected])