PARIS () -- The NYMEX weighted trade index today tested recent lows. Crude was trading close to $59, which are five-month market baselines. But according to some analysts new figures out of China could spur a fresh round of demand growth. Demand growth that would spell a renewed bullish price environment.
As Resource Investor , China effectively rationed its internal markets for oil this year. Forced factory shut downs and two and three-day weeks were the blunt instruments - internal pricing that meant refiners were better off exporting product, were the more sophisticated. All this added up to reduced demand growth.
Instead of running at around 18% the growth in Chinese demand could be as low as 5% this year. For much of 2005, it has been flat.
But new figures show that imports of crude products have surged. Government imposed price differentials on refiners have been relaxed. Furthermore, commercial inventories have been used up satisfying the domestic thirst for oil.
"It has been artificial rationing," said Kevin Norrish of Barclays Capital bank to Resource Investor. "But we are set to see a big acceleration in [Chinese] demand growth through the end of this year and the beginning of next. For example right now Chinese refining is at it's highest ever level, around six million barrels per day. It does seem to be a rebound."
Chinese government pricing has meant that refiners have been losing money in China hand over fist. As a result refiners have exported product away from China to make better profit. This has led to a tightrope for China as fuel queues grew at the pumps.
"There are now lower exports of refined product," Norrish explained. "SINOPEC recently admitted that they have made a loss of $1bn this year from refining operations. That meant refiners sent more of their products abroad. Now there is a significant pick up."
In addition to this, there has been a reported surge in demand from China for Middle Eastern crude products. In fact, from crude products all over the producing world. Imports from Saudi Arabia ballooned in September according to new Chinese government figures. The middle-eastern kingdom is now the biggest single exporter to China with 19.78% of the market.
That means that 53.36% of Chinese demand for imports is now sourced in the Middle East. That is over half as high again as this time last year.
"The composition of Chinese imports has developed quite a lot," said Norrish. "China will be increasingly competing for the brands of light sweet crude out there, especially Middle Eastern and west African grades. Especially as much of the demand growth in China is coming from the transport sector. Heavier grades of crude are going to be used more in power generation, but also Chinese refiners are going to have to change their operations to suit the brands of crude available on the market."
Of course these figures do come with "a health warning" as Norrish put it.
"Chinese figures are very good in as far as their timeliness goes, they are only about three weeks delayed. But you don't get the weekly updates like you do in the USA. Also, with their data revisions you would expect to see figures changed over time. Especially with so many smaller plants in the country it would make it very unusual that you would get the figures right first time. But that is what the market has to go on."
One obvious result of this new Chinese demand is the possibility of tighter markets going forward - one that could surprise a few people on the upside.
"The market is complacent about demand growth," Norrish insisted. "And certainly on the impact on the physical market. We are likely to see an acceleration in [demand] growth and that may well take the market by surprise."