China Seen Retaking Lead From U.S. in Oil Demand Growth

China will retake the lead over the U.S. in oil demand growth this year as its manufacturing and transportation industries expand, the International Energy Agency said.

Chinese use is forecast to expand 3.6 percent, or 369,000 barrels a day, to 10.49 million barrels a day this year, the Paris-based energy adviser said in its monthly oil market report today. U.S. consumption will rise 0.4 percent, or 72,000 barrels a day, a slower pace than last year when its barrel-a-day expansion exceeded that of China.

Soaring shale output in the U.S. is helping the world’s largest oil consumer achieve its highest level of energy independence in two decades. The U.S. will surpass Russia and Saudi Arabia as the world’s top producer by 2015 and be close to self-sufficiency in the next two decades, while China will become the world’s largest oil consumer by 2035, replacing the U.S., the agency predicted in November.

“The one thing you can say with real clarity is that China will need a lot more oil in the future,” Matt Parry, senior economist at the IEA, said by phone from Paris today. “It’s been a strange year in the U.S., you’ve got the cheap U.S. oil story, you’ve got the petrochemical industry in the U.S. being a massive growth pool. That’s unlikely to be repeated this year.”

Beating China

Demand in the U.S. is poised to rise to just over 19 million barrels a day this year, the first time it’s exceeded that level annually since 2010, according to the IEA. Last year, U.S. demand gained 390,000 barrels a day, or 2.1 percent, which exceeded Chinese growth of 295,000 barrels a day, or 3 percent.

The U.S. consumption surge in 2013 was unusual and driven by petrochemical producers using cheaper domestic oil as a feedstock, Parry said. As a result, total demand among industrialized nations in the Organization for Economic Cooperation and Development gained in 2013 after two years of declines.

China’s rising consumption, in contrast, is backed by its economic expansion and manufacturing growth, forecast at about 7 percent and 10 percent this year, respectively, he said.

“Chinese oil demand should outpace the U.S. because of the more supportive macroeconomics,” Parry said. “A rapidly expanding driving pool, and the manufacturing sector, will expand at a much faster pace than the U.S. It’s industry and transport which will basically drive it forward.”

More Cars

China became the first country to see domestic vehicle sales surpass 20 million units a year in 2013. Deliveries will rise as much as 10 percent this year, the state-backed China Association of Automobile Manufacturers said this month.

“Most people in China don’t have cars and they want cars,” Parry said. “A huge proportion of China’s population hasn’t ever flown on an airplane. It’s a huge population that currently consumes a tiny proportion of oil per head compared to the U.S.”

Laws preventing the export of crude from the U.S., where the production surge last year was among the biggest for any country in history, “could have an adverse impact in continued investment in light tight oil and thus continued growth in production,” an event the IEA refers to as the “crude wall.”

To contact the reporter on this story: Lananh Nguyen in London at lnguyen35@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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