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Beijing: China's apparent oil demand rose 6.5 per cent in June after an increase in state-set fuel prices persuaded refiners to end shortages that had stifled consumption, and as energy firms stocked up ahead of the Olympics.
The strong appetite of the world's number-two oil consumer, even as international crude prices climbed towards $140 a barrel, partly offset faltering demand in Western nations but brings further headaches for a government worried about energy security.
Beijing made surprise increases of nearly 20 per cent to diesel and gasoline prices from June 20 in a bid to end long gas queues that were hitting industries from aluminium to tourism.
Refiners had curbed production because low state-set retail prices meant they were haemorrhaging cash on every barrel of crude processed. The increase eased their losses but many say they are still struggling to break even.
Overall in June China consumed 7.75 million barrels of oil per day, up 6.5 per cent from a year earlier after May saw the lowest growth in eight months.
"This is not unusual. You see shortages build up, and then they raise the price and demand surges. That pattern has happened several times over the last few years," said Jeff Brown, Chief Economist for the Facts Global Energy group.
In the first half of the year, implied demand - net imports plus refinery output, but excluding inventory changes which are not reported - rose a slightly weaker 5.3 per cent to 7.31 million barrels per day, the figures showed.
Consumption
Consumption growth in the first half is in line with what analysts expect from a country where economic growth, while slowing, is still in double digits, and the new middle-classes show no sign of ending their love affair with the car.
"Gasoline demand will continue to grow because the Chinese are buying so many cars, and most of the people who can afford the cars can afford the fuel," said analyst Brynjar Eirik Bustnes at J.P. Morgan in Hong Kong.
Chinese car sales rose by 22 per cent last year, and while the pace of growth has slowed this year, it is still helping bolster rising demand for oil products.
"Subsidies on the side also make up for part of the price hike, whether for farmers or the taxi drivers, so I don't think demand growth in China will change much. We are looking at 5 to 6 per cent over the next couple of years," Bustnes added.
In contrast, US Energy Information Administration information showed oil products demand nationwide fell by around 388,000 bpd or 1.9 per cent from year-ago levels in the four weeks to June 27.
China, with its extra 475,211 bpd in oil demand in June, should help mop up the extra barrels that are no longer going to the US, and along with the Middle East and neighbour India continue to provide support for world markets.
But that reliance on, and influence over, global crude prices worries China's leaders, who are uncomfortable being held up as a factor in oil's upward spiral and fret that an ever-growing portion of their crude comes from overseas.
New projects
China has also drawn heavily on world markets for oil products in recent months. A refinery in the port city of Qingdao, which came on-stream at the start of the summer, helped bolster supplies and offshore producer Cnooc will open its first plant by the end of the year.
But in June, as firms rushed to take advantage of expiring import tax rebates, diesel imports soared to a record near 1 million tonnes and demand growth was particularly strong - at 17.5 per cent the second fastest expansion in over three years.
In contrast, fuel oil demand collapsed by more than a third as rocketing prices kept a cap on consumption by power plants in the south despite subsidies and tariff increases designed to stem a brewing power supply crisis.
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