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Optimism in China's Oil Demand Growth

by: FP Trading Desk October 09, 2008    

FP Trading Desk

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While China’s economy sucks up a huge amount of oil and alters the demand landscape, fears of how a global economic slowdown will impact the rapidly-expanding nation are becoming more amplified.

But even in a global recession, China’s real GDP should grow by 8.0% next year. While acknowledging that this is hardly a consensus views, the forecast from UBS coincides with its optimistic views on oil demand growth in China.

UBS global oil economist Jan Stuart told clients:

Indeed, much of the push-back on our thesis that oil prices remain relatively high next year involves visions of emerging market oil demand (read China) collapsing like a picnic table.

However, with broad trends pushing demand for both diesel and gasoline higher, along with urbanization, a shift toward manufacturing from agriculture, greater transport requirements and trading all pushing for sustained growth for transport fuels, UBS said there is a case for greater oil intensity of GDP going forward.

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This article has 3 comments:

  •  
    Oct 10 01:38 AM
    Yeah, oil and steel go together often. So I am looking at starting positions in X and GU over the last two days.

    concisetrading.blogspo.../
    Ryan
    Reply
  •  
    Oct 10 02:05 PM
    This emerging market/China oil story is looking very tired. How much oil demand was driven by domestic demand, and therefore presumed by most to be sustainable. Alternatively, how much of China's economic growth, and therefore overall economic demand growth and oil demand growth, was merely the re-branding of European/US demand growth as a result of relocation of the manufacturing base. Has global growth actually increased in past years as a result of China or has there been merely a re-allocation of sources of growth, and therefore with China having a more neutral impact on overall global demand growth for oil.

    Apologies for posing more questions than hard quantified answers, but somebody has got to call these desperate calls for help from the commodity bulls.....
    Reply
  •  
    Oct 11 02:07 PM
    When 15 to 20 million people move from farms to newly constructed cities the size of Philadelphia on an annual basis and are expected to continue doing so for another 15 years, I would indeed consider this to be a "re-allocation&qu... of growth. The new transplants will need everything. Walking to work will not be an option. They will not be able to grow their own food, go to the well for water or run a generator for power.

    Re-allocations of this size are happening annually.

    The City of Beijing was around 20 miles square some 10 years ago. It is now around 50 miles square, 60 in one direction 50 in another. Walking is definitely not an option.

    I doubt whether Global demand was raised by China alone, but I do believe they were and will continue to be a big influence.

    In the last few days the IMF has released Global expectations for GDP, 3.0 vs 3.7. The 3.0 includes Recessions in the West or negative GDP.

    On Thursday night, Bloomberg Asia had a leading Chinese economist forecasting 2009 GDP at 9.5%.
    Contrary to popular American Media outlets, Chinese exports to the US are only around 21% of their total output. Eliminating the US entirely, which will not happen, reduces their annual GDP from an 11-12 rate to 9-10.

    Forced Selling has lowered all Commodity Prices. If anything, Economic growth in Asia will accelerate because of it. They do not have to have "credit" to finance their Internal Growth.

    To date, The financial meltdown has created losses of 24 Billion primarily from foreign equity losses.
    Reply
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