Manufacturing News

China 2006 oil demand raised to 7 mln bpd

The International Energy Agency (IEA) said it has raised its forecast for China's 2006 oil demand to 7 mln barrels per day

BEIJING (AFX) - The International Energy Agency (IEA) said it has raised its forecast for China's 2006 oil demand to 7 mln barrels per day (bpd) from 6.9 mln bpd a month earlier.

The IEA said in this month's oil market report that after weak first quarter demand of 2.5 pct, China's apparent oil demand grew by an unexpected 9.6 pct year-on-year in April and that gasoline demand surged 19.7 pct, in part due to strong vehicle sales.

The Chinese government increased the state-set retail price of gasoline and diesel by 9.6 pct and 11.1 pct respectively, which is expected to help domestic refiners who have been losing money due to artificially low prices, the IEA said.

The report said the hike was considered larger than expected, particularly after fuel prices were raised only 3-5 pct, but that further adjustments remain a possibility as prices are still below those of the international market.

The IEA added that the government said it will increase subsidies to industries it expects to be more heavily affected by the increase in prices, including the fishing and agriculture sectors.

The IEA said that the retail price increase may add to apparent demand in the near term with refiners now more willing to supply the domestic market, but may ultimately lessen demand growth in the long term.

The National Reform and Development Commission (NDRC) ordered state-run oil firms to increase diesel production and to limit exports in order to secure domestic market supply.

The IEA projected China's second quarter demand to increase by 8.6 pct before decreasing to 5.9 pct in the second half of 2006.

Transport fuels are expected to grow by 7-9 pct over the remainder of 2006, said the IEA.

While implied diesel demand grew by a mere 3.7 pct in the first quarter, demand increased by 10.9 pct in April, which the IEA said was in line with China's expanding economy.

As a result of a decline in the demand for oil in the power generating industry, fuel oil demand continued to decrease, this time by 4.4 pct.

The IEA said that despite warmer weather predicted for this summer, power shortages were expected to be reduced to 8 gigawatts compared to the 30-40 GW shortages that occurred in 2004 .

The Chinese government reported that 30 GW of new capacity would be added in the first half of the year and that it expects additions of 75 GW for the whole of 2006.

Water volumes at China's major hydropower reservoirs are 16 pct higher than a year earlier and are expected to increase generation this summer.

As a means of relieving China's dependency on oil, China has assigned 65 pct of a an annual 3.7 mln tons of liquid natural gas to its power sector, the first shipment of which it recently received.

The IEA said that while the demand for oil products increased by nearly 10 pct in April, crude imports declined by 1.9 pct from the previous year.

This was not unexpected, said the IEA, due to a reversal of the situation in the first quarter.

In the first quarter the growth in apparent demand for crude oil was much stronger than growth in apparent demand for oil products as crude imports increased by nearly 25 pct from a year ago.

The IEA said that as the growth for these two demand categories should remain approximately equal in the long term, strong growth in the apparent demand of oil products was to be expected.

Chinese crude runs were reported at 5.7 mln bpd in April by the country's two main refiners, marginally higher than 5.5 mln in March.

The IEA said that total Chinese crude runs increased to 6.1 mln barrels per day in April, over 5.93 mln in March and are expected to rise again to 6.2 mln bpd in May.

Fears of inadequate domestic supply led to decreased exports of gasoline and diesel and May's domestic price increase is expected to cause domestic refiners to increase runs and with reports of some even restarting idle facilities.

Maintenance work at Sinopec's Maoming and Jinling plants and Petrochina's Lanzhou unit are expected to affect June throughputs, but the commissioning of a 160,000 bpd Hainan refinery in late June and the completion of work at these plants should improve runs in the third quarter.

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