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China to lead oil demand growth as OECD area struggles

by Staff Writers
Houston, Texas (AFP) March 10, 2010
China's hunger for oil is set to drive global demand in the coming years as consumption in the industrialized countries may not regain pre-economic crisis levels, experts say.

"Chinese demand will continue to grow at a relatively high rate," said Kefeng Yang of research firm IHS CERA, the organizer of an energy conference this week in Houston in the heart of the US oil industry.

The US Energy Information Administration (EIA), a government agency, projects Chinese demand for oil will rise more than five percent in 2010 and 2011, when consumption is expected to top nine million barrels a day -- still only half as much as US demand.

But in the United States, the world's largest energy consumer, and other industrialized economies, demand remains weak amid a fragile recovery from the worst global economic slump since World War II.

Some experts said that with the changing shape of globalization, demand in the advanced economies may not recover to pre-crisis strengths.

"I doubt very much this is a period of taking off" in consumption in the industrialized world, said Edward Morse, head of commodities research at Credit Suisse.

The EIA estimates global demand would increase by an average 1.5 million barrels a day this year, following the first two-year decline in a quarter of a century.

The Organization of the Petroleum Exporting Countries, the cartel that supplies 40 percent of the world's oil, on Wednesday revised slightly higher its 2010 world demand outlook, citing downside risks to the forecast.

OPEC predicted a modest 1.1 percent rise in world oil demand this year but warned that the economic recovery has been supported by government stimulus plans that eventually would end.

The US energy agency sees the largest share of global demand growth coming from the Asia-Pacific and Middle East regions, not from the 30 developed member countries of the Organisation for Economic Co-operation and Development.

"You can't expect demand growth in the OECD area," Marianne Kah, chief economist at US oil firm ConocoPhillips, said at the Houston conference.

"We are in an economic global recovery -- unassuming the sovereign debt issues, unassuming we get a period when governments take away their fiscal stimulus," she said.

The OECD zone has "lost four million barrels a day of demand since 2007," she added.

"It will take a lot of growth to replace that, but the problem is economic growth is not going to be strong."

In the US, demand is expected to grow by about 200,000 barrels a day this year and the next, when consumption would be the weakest since 1999, according to the EIA.

"The United States has joined the rest of the OECD as a non-demand growth country," said Credit Suisse's Morse.

In China, Yang said, transportation and the petroleum industry were likely to remain the two engines of the economy, with demand in the oil industry continuing to benefit from the country's robust economic growth.

But the Asian giant's spectacular transformation into an economic powerhouse raises questions about future oil demand, experts said.

"I'm worried about how they make the transition from a manufacturing-driven export economy to stimulating their domestic consumption," said Kah.



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