As oil prices fall sharply yesterday and today, it's in my contrary nature to focus on this second major price spike of the past several months.
For despite the recent pullback, oil is indeed making yet another attempt at hitting the global economy with a sharp body blow. Back in October and early November 2004, closing crude futures prices on the NYMEX topped $50 per barrel for twenty straight days and twenty-two of twenty-four before receding rapidly to the $40 mark in mid-December. Now in March 2005 we have an encore performance. Through yesterday, NYMEX oil futures prices have topped $50 per barrel for thirteen days in a row -- just one week short of last year's sustained record levels.
The Europeans are suffering as well. Through yesterday, Brent crude spot prices have been over $50 per barrel for ten straight days. Thanks to the tanking dollar, however, the pain is less now than back in October when Brent closing prices topped out at $52.28. Wednesday's $54.30 was just �40.57 compared to October's �41.36.
And to top it all off, the Financial Times reports today that
The International Energy Agency on Friday raised its forecast for China�s oil demand in 2005 from 100,000 barrels per day to 500,000 barrels.The IEA is being a bit coy here. China's relative oil consumption growth rate in 2005 is forecast to be lower than 2004, but what of the absolute oil tally? It's hard to tell what the IEA's latest thinking is since it won't release it's full March report to the great unwashed masses for another month, but from February's report we can see that China's total oil demand for 2004 was 6.38 mbd for a grand total of 2328.7 million barrels consumed. If 2005 demand is supposed to be 0.5 mbd higher, then the Chinese total for 2005 should come in around 2511 million barrels, or over 180 million barrels more this year.
The increase was based on forecasts that US economic momentum would last longer than previously expected, which would help China sustain manufacturing exports. . . .
The IEA also said China was clamping down on construction of unapproved power plants which are chiefly coal-fired. Persistent power shortages boosted demand for gas oil and residual fuel oil, but the IEA felt this situation would probably not get much worse.
Overall, the pace of growth in Chinese demand for oil has been slowing, as Beijing seeks to cool economic growth to 8 per cent in 2005 from 9.5 per cent last year.
The increased estimate for oil demand of 500,000 barrels per day represents a 7.9 per cent acceleration, but that is only about half the 2004 growth rate of 15.9 per cent, while in January and February, China imported 13 per cent less oil.
Now put that together with the insatiable US appetite for oil which dwarfs China's levels and you see this US-China global imbalance tandem continuing to fuel the fire well through the new year.