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China’s oil imports soared during the second quarter and into July, when they reached 4.6 mbpd, compared with just 3 mbpd in January, say the Centre for Global Energy Studies, a London based think-tank in its August 17 research note.
It said that state-owned companies took advantage of low prices to build up stocks, a phenomenon that was repeated in other commodities, such as copper and iron ore.
Global oil production has remained virtually flat month to month, with North Sea maintenance and declining Mexican output offsetting increases elsewhere, so the surge in demand has provided some support for rising oil prices over the past month.
The price surge may be running out of steam, though, it added.
Chinese commodity purchases have slowed as prices have risen, while the cheap loans made available through the country’s stimulus package may also be coming to an end.
The Chinese economy has struggled to absorb the wave of money thrown at it through investment in infrastructure and the Central Bank estimates that as much as 20 per cent of the credit has gone into equity markets, it said.
“If China’s oil imports begin to flag, as seems to be happening, this support for oil prices is likely to disappear as quickly as it materialised. If this happens, the bullish sentiment of futures market players could prove shortlived, bringing to an abrupt end the recent surge in oil prices,” the Centre for Global Energy Studies said.
The sustainability of China’s recovery and its recent spate of oil buying could thus prove critical for oil prices over the coming months.
Global oil demand has collapsed, Opec output is creeping up and the prospects of a global economic recovery are uncertain, yet oil prices have doubled since the beginning of the year — rising by 20 per cent in the last month alone, the research note added.
The surge in oil prices is not justified by market fundamentals, it is being asserted, but is driven by so-called investors on the futures markets, who are bidding up oil prices based on expectations of economic recovery.
The oil price has become more of a forward indicator, reflecting the collective beliefs of all those trading the commodity as to where the market will move over the coming weeks and months, say the report issued on Monday.
In contrast, the data on oil market fundamentals are backward-looking and even then only give us a very hazy picture.
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