The Chinese Oil demand fallacy
Posted by Moonage on 11 Oct 2005 | Tagged as: Oil Supply
My fellow Fools and I have been having this discussion in regards to the price of gas. Initially it started as a debate over the 2005 Energy Act and how permits would not lead to more refineries. As with any lengthy discussion, it morphed. One of my bestest buds then made this comment:
Both India and China are third-world countries having a GDP a fraction of that of even slightly more developed countries. Also, India and China have cut back on their oil imports: at $60-odd a barrel they don’t have large-enough internal markets to support the refined price and only through subsidy can their manufacturing plants survive.
I, too, thought the import of oil to India and China was a strong factor but after investigating how much they actually buy I realized it’s another red herring. It’s a plausible red herring yet one that doesn’t stand up to their use added to all world use is still below oil production. What made it seem plausible was that it was said as if India’s and China’s use was at the same percentage as developed countries and it isn’t. That in, say, ten years, their use would subtract from that available to developed countries.
He started his post with the comment that we were all buying into the "fear factors" of oil speculation. That the China/India demand was not really all that it was touted to be. It was yet another smokescreen used by the oil industry to justify the high prices. Thought really caught my attention, so I took a look. This is what I found:
| 2001 | 2002 | 2003 | 2004 | 2005 | Growth | |
| US | 19.65 | 19.76 | 20.03 | 20.73 | 20.51 | 4% |
| China | 4.92 | 5.16 | 5.55 | 6.52 | 7.01 | 42% |
| 300% | 283% | 261% | 218% | 193% |
What everyone’s been saying is true, the demand in China is exploding, rising 42% in the last four years. What Michael’s saying is true, they still pale compared to the US. And, how has that affected demand?
| 2001 | 2002 | 2003 | 2004 | |
| 77729 | 76935 | 79650 | 83024 | 7% |
China has added 2.09 million barrels to demand, the world has added 5.3 million barrels to the supply. In other words, China’s not competing for oil we’re using, they are using some of the excess the world is producing.
Once again, I have to agree with Michael. The China demand excuse is just that.
So why is the price of oil so high all of a sudden?
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