BEIJING (XFN) – China’s oil demand is expected to begin accelerating global oil demand in about 10 years, which will then put long-term upward pressure on oil prices, Andy Xie, Asia-Pacific chief economist at Morgan Stanley, said.
“China’s oil demand is accounting for more and more of the world’s demand growth,” he said.
China accounted for 6.7% of global oil consumption in 2001 and probably accounted for 7.3% in 2002, but it accounted for more than 40% of global demand growth last year, compared with 29.4% between 1991 and 2001, he added.
“However, one must take into account the redistribution of demand for oil through relocation of production to China,” Mr Xie cautioned.
China’s net impact is due to rising energy consumption on the back of lifestyle changes, as automobiles and public transportation are replacing the bicycle. Newly-developed urban housing is also much more energy intensive, he said.
“China’s net contribution to the growth in global oil demand is just beginning. Thus one could argue that oil’s bear market is over and a bull market may last until China’s standard of living converges with developed economies,” Mr Xie added.
He said current high oil prices are a concern for Asia again, with the expectation that each dollar increase in oil prices directly reduces GDP annual growth rates in East Asia (ex-Japan) by 0.1 percentage point, as the region’s export prices cannot rise in line with oil prices in the short-term.
China is about half as sensitive to oil price changes as the region as a whole, but South Korea and Thailand are both twice as sensitive, he added.
Mr Xie said he expects China’s GDP growth will slow to 7.2% this year, compared with last year’s 8%.
International oil prices have seen a sustainable rise due to a likely war in Iraq and an oil workers’ strike in Venezuela.
NYMEX crude oil futures have been trading at US$35-$37 over the past week.