CHINA AND OIL

CHINA'S OIL DEMAND SET TO LEAD WORLD AGAIN IN 2012

Chen Aizhu

Reuters, October 12, 2011

BEIJING (Reuters) - China's oil demand growth next year is unlikely to revisit the blistering pace of 2010 but at around 6 percent it will still be enough to underpin oil prices even as developed world economies struggle.

The world's No.2 fuel user is adding more refining capacity and storage tanks to feed an economy expected to grow at 9 percent or faster, which should allow demand growth to match this year's expected 6 percent.

While half the pace of last year, China's demand this year contributed more than half of global incremental demand, according to the International Energy Agency.

Analysts predict roughly 600,000 bpd of incremental oil use in 2012, which should continue to support global crude prices that have averaged more than $94 this year, nearly $20 above their average for the previous five years.

In contrast the United States, the world's top oil user, will see a tepid 80,000 bpd growth in demand, according to the U.S. government's Energy Information Agency (EIA).

"We expect growth will be faster than consensus estimates over the next 5 years, which will be supportive of global oil prices," Neil Beveridge of Bernstein research wrote in September.

"China remains at the early stage of a secular growth cycle."

A consensus of around 9 percent expansion in the Chinese economy, easing off this year's estimated 9.4 percent but still robust, would in particular support diesel, the main transportation fuel for manufacturing.

As refiners are slated to start about 530,000 bpd of new crude processing facilities, versus 360,000 bpd this year, and as end-2012 is the target for China to complete building its second-phase strategic oil tanks, China's appetite for foreign crude may rise quicker than this year's modest 7 percent.

Beveridge's team has pegged China's compound annual aggregated oil growth at 6.7 percent from now to 2015, citing vehicle ownership and a petrochemical boom as key drivers for growth.

Fu Chengyu, chairman of top Asian refiner Sinopec Corp, told Reuters on Wednesday that he expected Chinese demand to hold steady.

"Global oil demand is unlikely to grow strongly due to the economic outlook, but China will see sustainable growth next year, similar to this year," said Fu.

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