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PostPosted: Tue Oct 29, 2013 1:14 pm 
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Monitor
Tom Holland
PUBLISHED : Monday, 14 October, 2013, 12:00am
UPDATED : Monday, 14 October, 2013, 4:31am
Oil price heading for US$200 as China's imports set to surge

With the mainland’s voracious demand, World Bank consultant projects steady climb in prices, and that will hurt global economic growth

Tom Holland

As the writer of the South China Morning Post’s Monitor column, Tom Holland attempts each day to make sense of the latest developments in business, finance and economic affairs in Hong Kong and mainland China.

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Growing thirst

Last month, China passed another milestone in its economic development, although not an auspicious one.

In September, China overtook America as the largest buyer of oil on the international markets.

According to the Energy Information Administration of the US government, last month China's net oil imports hit an average 6.3 million barrels a day, surpassing the US, which imported 6.2 million barrels a day (see the first chart).

China has long boasted the world's fastest growing thirst for oil. In 1996, it accounted for just 5 per cent of the world's demand. By last year, thanks to years of double-digit growth, China's share of global oil demand had more than doubled to 11 per cent.

That trend isn't going to change direction any time soon. Although China's overall growth rate is set to slow over the next few years, it is likely Chinese consumer demand will continue to grow rapidly as household incomes rise. And it is consumer demand, in the form of ballooning sales of private cars, that is driving China's demand for oil.

According to Simon Powell, the head of oil and gas research at brokerage house CLSA, 10 million new cars will hit China's roads each year for the next 10 years. What's more, the fastest growing sector of the market, with sales accelerating by 25 per cent a year, is for fuel-guzzling four-wheel drive monsters.

As a result, China's demand for oil will continue to surge, rising from about 10 million barrels a day this year to almost 18 million per day by 2035, according to forecast compiled by World Bank consultant Mamdouh Salameh.

Nearly all of the extra oil will have to be imported. Despite heavy investment in domestic fields, China lacks the reserves to meet all but a fraction of its future demand from its own wells. This year, China is expected to produce about 4.2 million barrels of oil a day; an amount that will barely change over the next 20 years.

That means net imports are set to soar from 58 per cent of consumption this year to 72 per cent by 2035, equivalent to an extra 6.6 million barrels of oil imports every day (see the second chart).

In other words, China's oil imports will more than double over the next 20 or so years.

That's going to squeeze global supplies.

In the past, the Organisation of the Petroleum Exporting Countries maintained a comfortable cushion of spare capacity, but that has now fallen to just one million barrels a day. Worse, Opec's biggest producer, Saudi Arabia, has no plans to raise its production capacity over the next few years, implying an increasing upward pressure on prices.

"In the future, China will have to outbid the rest of the world for oil supplies, forcing up oil prices," warns Salameh.

Under an optimistic scenario, in which no political upheavals affect markets and new supplies continue to come on stream from Brazilian and Angolan offshore deposits, Canadian tar sands and American oil shales, Salameh reckons the price of oil would continue to hover between US$100 and US$130 a barrel for the remainder of this decade.

But in reality, with supplies tight and politics unpredictable, "prices will continue to spike over the next five years, occasionally reaching US$200 per barrel", he predicts.

That's going to hurt. Salameh argues the world can afford to spend at most 6 per cent of global gross domestic product on oil , which equates to an average price of no more than US$137 in 2015, or US$156 in 2020. Any more than that - which looks highly likely given the strength of Chinese demand - and global economic growth will begin to suffer.

The good news is that the world is not short of oil. But Salameh estimates it will take investment of more than US$13 trillion between now and 2030 to ensure sufficient supplies.

The only way that's going to be forthcoming is if prices rise.

tom.holland@scmp.com
This article appeared in the South China Morning Post print edition as Oil price heading for US$200 as China's imports set to surge
http://www.scmp.com/business/commoditie ... -set-surge

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PostPosted: Tue Oct 29, 2013 3:33 pm 
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we'll see the chinese won't pay any price for their oil as they need to stay competitive on their exports I think there will come a point when chinese demand will slow and prices will stabilise or the arabs will push up their production to cash in and supply will grow

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PostPosted: Tue Oct 29, 2013 3:46 pm 
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edders23 wrote:
we'll see the chinese won't pay any price for their oil as they need to stay competitive on their exports I think there will come a point when chinese demand will slow and prices will stabilise or the arabs will push up their production to cash in and supply will grow


The chinese will pay the going rate, whatever it is or they will do without. Same as everyone else.
The Arabs have very little spare capacity with which to push up production.

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PostPosted: Tue Oct 29, 2013 6:19 pm 
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gusmac wrote:
The Arabs have very little spare capacity with which to push up production.

At the moment the spare capacity is running at around 2.5 million barrels a day. in 2004 the spare capacity was around 700,000 barrels a day. It is predicted to be around 4 million barrels a day by the end of 2014.

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PostPosted: Tue Oct 29, 2013 9:33 pm 
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Quote:
In the past, the Organisation of the Petroleum Exporting Countries maintained a comfortable cushion of spare capacity, but that has now fallen to just one million barrels a day. Worse, Opec's biggest producer, Saudi Arabia, has no plans to raise its production capacity over the next few years, implying an increasing upward pressure on prices.


The article says 1 million barrels a day, not sure where your figures come from?

Even if they are correct, 4 million barrels a day isn't that much of a margin for a world economy emerging from recession.
China alone would soak that much up in less than 10 years.

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PostPosted: Tue Oct 29, 2013 9:42 pm 
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gusmac wrote:
Quote:
In the past, the Organisation of the Petroleum Exporting Countries maintained a comfortable cushion of spare capacity, but that has now fallen to just one million barrels a day. Worse, Opec's biggest producer, Saudi Arabia, has no plans to raise its production capacity over the next few years, implying an increasing upward pressure on prices.


The article says 1 million barrels a day, not sure where your figures come from?

Even if they are correct, 4 million barrels a day isn't that much of a margin for a world economy emerging from recession.
China alone would soak that much up in less than 10 years.

I didn't use the information from a story designed to worry people. I did a search on Google and read several different reports.

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PostPosted: Tue Oct 29, 2013 9:54 pm 
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grandad wrote:
gusmac wrote:
Quote:
In the past, the Organisation of the Petroleum Exporting Countries maintained a comfortable cushion of spare capacity, but that has now fallen to just one million barrels a day. Worse, Opec's biggest producer, Saudi Arabia, has no plans to raise its production capacity over the next few years, implying an increasing upward pressure on prices.


The article says 1 million barrels a day, not sure where your figures come from?

Even if they are correct, 4 million barrels a day isn't that much of a margin for a world economy emerging from recession.
China alone would soak that much up in less than 10 years.

I didn't use the information from a story designed to worry people. I did a search on Google and read several different reports.


Oh well, nothing to worry about then........... :roll:

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PostPosted: Wed Oct 30, 2013 7:29 am 
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gusmac wrote:

Oh well, nothing to worry about then........... :roll:

No, I don't think so. You are just one of the scarmongers. That is what you independence people are all about.

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PostPosted: Wed Oct 30, 2013 7:43 am 
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grandad wrote:
gusmac wrote:

Oh well, nothing to worry about then........... :roll:

No, I don't think so. You are just one of the scarmongers. That is what you independence people are all about.


Them indies and their historical Scars..long resentful memories but no real future vision is their problem.. :wink:


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PostPosted: Wed Oct 30, 2013 8:06 am 
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gusmac wrote:
grandad wrote:
Quote:
In the past, the Organisation of the Petroleum Exporting Countries maintained a comfortable cushion of spare capacity, but that has now fallen to just one million barrels a day. Worse, Opec's biggest producer, Saudi Arabia, has no plans to raise its production capacity over the next few years, implying an increasing upward pressure on prices.


The article says 1 million barrels a day, not sure where your figures come from?

Even if they are correct, 4 million barrels a day isn't that much of a margin for a world economy emerging from recession.
China alone would soak that much up in less than 10 years.

I didn't use the information from a story designed to worry people. I did a search on Google and read several different reports.




And who is it that accuses the rest of us of believing everything we read in the papers ?

could you be not practising what you preach Gus ?

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PostPosted: Wed Oct 30, 2013 12:22 pm 
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Yeah, just me and those johnny foreign Chinese trying to scare you poor sensitive Tory chaps.

Whatever #-o

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PostPosted: Wed Oct 30, 2013 12:25 pm 
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gusmac wrote:
Yeah, just me and those johnny foreign Chinese trying to scare you poor sensitive Tory chaps.

Whatever #-o



Oi I have never voted tory in my life thank you but I do believe in a pragmatic approach to things not in political ideology which is why you might think that

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PostPosted: Wed Oct 30, 2013 12:28 pm 
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grandad wrote:
gusmac wrote:

Oh well, nothing to worry about then........... :roll:

No, I don't think so. You are just one of the scarmongers. That is what you independence people are all about.


Of course, it's a nasty little plot by me and The South China Post to spread fear and alarm.
Next week I've enlisted the New York Times. #-o

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PostPosted: Thu Oct 31, 2013 3:31 am 
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The oil price has been dropping back. :-k


£1.34 for derv in some places.


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PostPosted: Thu Oct 31, 2013 1:13 pm 
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GBC wrote:
The oil price has been dropping back. :-k


£1.34 for derv in some places.


133.9p here.

There will be fluctuations but the trend is upwards. That's not going to change :(

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