China’s Record Oil Demand Unexpectedly Drives up Global Prices

While the onset of winter usually restrains the price of oil and its various derivatives (gasoline, jet fuel, diesel), China’s belated demand surge has put new pressure on global energy markets.

With worldwide gasoline demand for transportation having been expected to be more subdued than ususal due to the economic slowdown in the U.S. and Western Europe, the Chinese demand jump of near 10% in November 2012 (year-over-year) greatly expanded the pressure on major global producers (OPEC, Russia, U.S.) at a seasonal time of traditional demand reduction. What should have been expected, but was not taken into account by analysts, is the impressive breakout of automobile usage in China.

This factor is not only based on the fast-rising wages by millions of the Middle Kingdom’s urbanized dwellers, but the modernization of a growing component of that nation’s 1.4 billion world-dominant population. This has particularly expressed itself in the literal switch from bicycles to automobiles. It has particularly resulted in the rapid expansion of a domestic Chinese automotive production industry, but also in record and growing imports from the U.S. Reports from China indicate that America’s almost extinct Buick has become the hottest car to own in China today.

Although China’s periodic commodity buying binges at lowered world prices may be distorting the “Beijing” influence somewhat, the emergence of the new ruling Chinese “brain trust” is committed to consumerism and integrating a larger segment of its population into the 21st century.

While China’s domestic oil production is relatively negligible, its offshore buying levels have neared the 10 million barrels per day that the U.S. is still forced to import as supplement to its stateside excavation of over 8 million barrels per day.

While prices at the pump in the U.S. have dropped to the lowest level in a year, the disparity between oil and its derivatives such as gasoline have widened, at the same time that both world-priced Brent Crude and U.S. West Texas Intermediate oil costs have surged.

Looking down the economic pike of 2013, the China equation will likely require the upward revision of the global oil demand factor and its subsequent impact on prices.

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