The idea that emerging markets will be the key source of demand growth for crude oil in the coming years is nothing new. However, the latest import demand data from China underpins this development.
The country processed a record 374.6 million metric tons of crude in 2009, or 7.5 million barrels a day (bpd), according to China Mainland Marketing Research. China may boost refining capacity by more than 10% by 2014, which would lead to higher oil imports, according to estimates from Poten & Partners.
All this suggests the recent price strength in crude has a solid base.
UBS Wealth Management Research expects China’s domestic oil production to peak at around 4 milliom bpd, which means increases in production will need to be met with higher imports.
Saudi Arabia’s exports to China already exceed the volume shipped to the United States and Chinese crude oil demand could surpass 9 million bpd in 2010, UBS noted.
Chinese oil imports also rose by more than 1 million bpd in the fourth quarter of 2009 compared to the same period a year earlier. Since the base effects in demand are yet to show up, the investment bank thinkgs year-on-year changes in demand could reach almost 2 million bpd in the first quarter of 2010.
This is not to say the United States no longer matters. It remains the world’s largest consumer of crude oil. However, there is no need for U.S. demand to increase sharply.
“We only need demand to stabilize followed by a gradual recovery,” UBS said. “We think the U.S. economy should deliver such a scenario, especially with leading indicators pointing to a recovery in economic activity.”
The message: stay long crude oil. UBS thinks prices have room to move into the US$90 to US$100 per barrel range.