One of the factors we had mentioned that appeared to be contributing to the oil price runup of the first half of this year was China stockpiling gasoline, particularly diesel, in preparation for the Olympics. That notion was not well received.
This article from Reuters says that China is unlikely to return to its pre-Olympics levels of fuel demand for many years to come. Aside from the end of stockpiling, another factor is that China has started to cut its fuel subsidies, realizing that cheap energy allows manufacturers to be energy-inefficient, which in the long run will put China at a competitive disadvantage.
From Reuters (hat tip reader Michael):
China’s nine-month auto fuel buying frenzy ahead of the summer Olympics helped lift global oil markets to records, but beleaguered bulls beware — it could be years before conditions force it to launch another raid.
While an expected pick-up in crude oil purchases to feed new refineries should attest to the ever-growing demand in the world’s second-biggest consumer, imports of diesel and gasoline will remain the exception rather than the rule as China maintains its focus on remaining self-sufficient in refined fuels…
“The massive import levels that we witnessed are not likely to be duplicated for a long time. The point about demand threatening to stall is a real important one,” said U.S.-based independent analyst Paul Ting.
“Absolutely, and by far the most important thing to decipher is whether the most recent round of price increase has begun to nudge China towards the price-elastic region,” he added….
Data due on Wednesday should confirm that China imported a hefty 530,000 tonnes (128,000 barrels per day) of diesel in August, a last batch of purchases after buying a record near 1 million tonnes in July, rivaling the United States….
“China’s policy was and still is to maximize domestic diesel production and stay away from imports,” said Kang Wu of FACTS Global Energy in Hawaii…..
China’s passenger car sales fell 6.24 percent in August from a year earlier to just below half a million units — the first drop in more than two years and a sudden reversal from years of nearly unbroken double-digit sales growth.
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Why on earth was China stockpiling so much fuel before the Olympics? The Games themselves can’t have required that much fuel, even if the government was planning to be able to keep them running in the event of a complete shutdown of supply.
This is the fleeting demand that everyone and their in-house oil analyst were extrapolating into perpetuity.
Amazing how humans love to extrapolate the fat tails when they show up, but ignore them once they’re gone.
Meet the new bubble, same as the old bubble.