From China, Some Relief on Oil Demand

From the New York Times: China's oil consumption is down 1% in the second quarter of this year after having risen 11% in 2003 and 15.4% in 2004. (Thanks, Balogh)

No time for extensive commentary right now, but these are the first 3 paragraphs:
A sudden and mysterious drop in China's oil consumption helped to push down the International Energy Agency's estimate on Wednesday of global demand for this year.

After growing 11 percent in 2003 and 15.4 percent last year, China's overall oil use declined 1 percent in the second quarter from the comparable quarter a year earlier, the agency said.

The drop is the latest in a series of unclear and often conflicting indications about whether the Chinese economy is still growing strongly. Top officials of the agency said in interviews they believed that the decline was temporary and that they expected Chinese demand to rebound in the second half of the year, but added that world oil prices could take a heavy blow if Chinese use did not increase.

IEA officials are saying that the drop in demand is probably temporary, and that the most likely explanation for it is

that China had not been allowing the domestic price of electricity and many refined products, like gasoline and diesel fuel, to rise nearly as quickly as world prices. This has caused power-generating concerns and service stations to sell less electricity, and less gasoline and diesel fuel, to limit their losses.
China is an interesting situation. Contrary to the recent discussions we've been having about oil and the free market, there'll be none of that in China. What happens to global oil supply and demand if it's subject to the whims of the market in one major energy-using country, but is tightly controlled by the goverment in another?

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Went to the NYC Peak Oil meet-up tonight. About 40 people around a few tables in the back of a cafe. The lead guy has a good sense of proportion and handled keeping the discussion moving.

Lots of great talk, similar to what we've heard on many of the peak oil discussion boards. Some extremists, but they were well educated on the subject.

The part that didn't come up until I proposed a time-out so I could talk to the lead guy was:Taking action at a community level - how do we educate the masses, change local government, get the various consitituencies (environmentalists, transport unions, alternative energy / transportation community activisits, etc together around a table and start planning our political and community building action.

This is just the beginning. If you are in the NYC area, please join the next meeting http://oilawareness.meetup.com/36/

I left early so if you live in the area, I bet they're still there.

"world oil prices could take a heavy blow if Chinese use did not increase"

By "take a heavy blow" they mean oil prices could fall, right? That's kind of an odd phrasing. Most consumers would welcome a drop in oil prices, they wouldn't view it as a "heavy blow". What's next? "Hurricane Emily turned away from the U.S. coastline today, dealing a heavy blow to expectations for more hurricane deaths this year."

"What happens to global oil supply and demand if it's subject to the whims of the market in one major energy-using country, but is tightly controlled by the goverment in another?"

Well, for one thing the oil is going to get used much less efficiently in China. I love this idea that the government is forcing gas prices to be low, meaning that the service stations actually lose money, so the stations take steps to reduce their sales in order to cut their losses! Talk about one hand not knowing what the other one is doing.

We heard so many stories about inefficiencies like this back in Communist Russia. Factories would make products that no one would buy, just to meet their quotas, etc. I thought China was supposed to be smarter than that, they were supposed to have a semi-capitalist economy. Sounds like their energy sector is just as backward as the Stalinists. If so, that's going to be a huge drag on their prospects for continued growth.

ecomist Brad Setser has an interesting post on this exact question:
"What happens to global oil supply and demand if it's subject to the whims of the market in one major energy-using country, but is tightly controlled by the goverment in another?"

One answer is that it may increase global prices because demand is higher inthe proce-controlled country than it otherwise would be. Theother point I found interesting was a counter to the point that "oil is fungible, it doen'st matter who owns the production facities" He opines that in a case there the market is failing and contracts are being revoked, it might matter a lot.

http://www.roubiniglobal.com/setser/archives/2005/07/is_oil_always_s.htm...