Wednesday, September 16, 2009

Chinese Oil Demand Shock

Running through many historical scenarios for other developing nations such as Brazil and Thailand I have come to the stark conclusion that the market could be underestimating Chinese oil demand growth by a huge amount over the next 2 to 4 years.

China is at a major inflection point in terms of oil demand. This has been borne out by many other countries at similar development stages. If anything, China is 2-3 years overdue an oil demand growth spurt given its income growth. The August 2009 82% year/year jump in annual Chinese auto sales is a harbinger of what is about to come. That 82% is not a typo. China has skipped its traditional seasonal summer decline in vehicle sale entirely so far in 2009 (see chart below).

Chart: Chinese Total Monthly Vehicle Sales in Millions
(click to enlarge)

If China follows a similar pattern to other developing nations then Chinese demand is likely to not just grow by its past 5 year rate of around 5% per year over the next 2 years. Chinese oil demand is on the precipice of a significant jump in annual growth over the next few years. The absolute barrel volumes of oil are enormous.
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