We managed to miss this story on China’s diesel imports sent to us by reader Michael.
When oil prices rose so rapidly early in the year, many pointed to robust growth in demand from China, and expected that level of growth to continue. Skeptics like your contrarian blogger pointed out other factors could be at work: pre-Olympics stockpiling (of which there were widespread reports) and additional hoarding due to the expectation that fuel subsidies would be cut after the Olympics (to the surprise of many, they were reduced in the preceding month).
Whatever the causes, it looks like China is sitting on a whole lotta diesel. From Bloomberg:
China, the world’s second-largest energy user, may halt diesel imports for a second month in November because of rising stockpiles, traders said.
China International United Petroleum & Chemical Corp. and China National United Oil Corp., the nation’s biggest oil traders, won’t buy any diesel cargoes this month, said two officials…
Fuel inventories have risen as oil-product consumption fell after the world’s fourth-largest economy grew at the slowest pace since 2003 in the third quarter. China increased imports of diesel, used to fuel trucks and power generators, to a record 970,000 metric tons in July to ensure supplies during the August Olympics Games.
“Domestic consumption has waned even as we approach the peak winter demand season,” Yao Daming, the director of the oil department at Guangdong Oil & Gas Association, said by telephone in Guangdong province, the nation’s manufacturing hub. “Stockpiles at privately owned teapot refineries are currently very high.”
Unipec, as China International is known, may not need to import diesel cargoes in the short term, said one of the traders…
The nation’s stockpiles of petrochemicals have risen to records because of the slowing economy, PetroChina Co.’s Chairman Jiang Jiemin said last month…
China Petroleum & Chemical Corp., Asia’s biggest oil refiner, will cut crude-oil processing volume at refineries with “relatively low profitability” because of falling fuel demand, parent China Petrochemical Corp. said earlier this week. Unipec is a unit China Petroleum, known as Sinopec.
And if you think OPEC cuts will do the trick, consider: of the 1.5 million barrel a day cut announced, only a 1.1 MBD cut si being implemented. And this level of compliance is better than normal. From a separate Bloomberg story:
The Organization of Petroleum Exporting Countries will cut output by 1.1 million barrels a day between October and January, 400,000 barrels less than the group pledged at a meeting in October, the Energy Department said.
OPEC, responsible for 40 percent of world oil supply, agreed to reduce production by 1.5 million barrels a day at an Oct. 24 meeting in Vienna. The 70 percent projected compliance rate compares with a 50 percent rate on previous OPEC decisions, the U.S. agency said in its newsletter, This Week in Petroleum.
I read a few stories and saw references to diesel prices that have risen by 240 percent since 2004.
It almost seems like we have some delayed global impacts of inflation that are not priced in at this point — or more realistically, those earlier inflation values from 4 years ago were distorted by The Bush folks, et al in order to under-estimate global inflation and to over-state GDP. Thus, re-pricing oil to reflect real valuation would be like re-stating GPD and de-valuing and depreciating everything in sight — then again, I probably need to sleep.
I assume China is a bagholder in this game and they also over-estimate growth and consumption and they have too much inventory and slowing demand, but, if this is a game of distortion from 4 years ago, what is the advantage to not distort things now? If GDP was overstated, why not continue along with that game and simple keep cheating?
Remember the stories going around on the bogus GDP deflator: Nominal vs. Real GDP: Why the GDP Deflator Overstates GDP
“Skeptics like your contrarian blogger “
thats why your ornery readers come here… somebody needs to face the onrushing lemmings and yell “Stop and think!!!”
And that is why this reader has come to this forum rather than waste time on The Economist, for their blind insistence that secular changes in demand was the primary reason for the spike up to $145!
Dont worry, OPEC’s unity will crack shortly, the way this economy is slowing, oil will be a lot lower soon. Unfortunately, that’s really not good for anyone.
Oil is a yoke now on global growth, as soon as the economy picks up, oil will rise right along with it. I look at a $80 a barrel as the choke point for how we currently do business.
We’re going to have to change, here’s a piece of mine published by the Asia Times on Wednesday, that talks about the financial mess, our economy, and energy,
Economics Can Open to New Realities