WASHINGTON, Aug 02, 2005 (Dow Jones Commodities News Select via Comtex)
Oil market analysts would be wise not to read too much into data that appear to show demand from the world's two largest consumers is stagnating, the U.S. Department of Energy's top oil statistician said Monday.
John Cook, the head of the oil division of the federal Energy Information Administration, said though recent data, including the EIA's own, appear to show a slowdown in demand growth in the U.S. and China, the information isn't complete enough to conclude that demand is indeed significantly weaker or for that matter that the trend will continue in the second half of the year.
In addition, spotty data makes it difficult to see whether there's been any letup in the stress that demand, whatever its rate, is putting on supplies.
"If you look only at the traditional indicators of apparent demand, you will see flat to sluggish growth for the first half of the year," Cook said. "But in the case of China, since inventory movements are not transparent, you need to be a little circumspect because what you do not know is how that demand rate is stacking up against supply."
Soaring global oil demand has been the main force driving prices to record highs above $60 a barrel. Producers and refiners, working at near capacity, have little left to cushion supply disruptions.
In recent weeks, however, a number of influential forecasters have cut their forecasts for Chinese and U.S. demand growth in 2005 based on sluggish preliminary data for the first half of the year. Oil markets have greeted the data with skepticism, even though much of it points the same way.
Economic Growth Strong
Cook seconded that skepticism, saying economic growth, a traditional gauge of oil demand, remains buoyant in both the U.S. and China, leading him to conclude that oil demand will eventually register an increase for 2005. Together, the two countries account for about a third of total world oil consumption.
A lack of up-to-date inventory data from China and an unclear picture of global production capacity additions makes it hard to say whether supply has been able to keep pace with demand, even if it has slowed down from last year's lofty gains. A dwindling cushion of spare crude production capacity has contributed to the prolonged oil price rally.
"Everyone agrees we will have slower demand growth this year after last year's strong growth, but how does that stack up with supply?" Cook said in an interview. "Given the spotty data we have so far, if one looks at GDP growth and the close correlation it has to oil demand growth, one has to wonder how significant the slowdown in underlying demand growth may be."
Cook said it wasn't remarkable that oil demand data in the U.S. looks weak since the EIA revised its 2004 demand baseline upward by more than 200,000 barrels a day. He said demand revisions are the norm after the EIA receives updated data from oil companies months after the first reports go out. While 2004 has been revised, 2005 hasn't had its chance yet, and the direction is usually up.
"Last year was not unusual; 2003 was unusual in that we saw no revisions for that year. To put the 2004 revision into perspective, roughly half of the revision seen over the last seven years was in the range of about 200,000 barrels a day," he said. "In addition, these revisions tend to be systematically biased upwards, because it is hard to track imports on a weekly or monthly basis, and usually you need to see the full year's data to make your conclusions."
China Tough To Read
The International Energy Agency earlier this month revised down its forecast for global oil demand growth by 400,000 barrels a day to 1.58 million barrels a day, citing a slowdown in Chinese demand growth and an upward revision to 2004 U.S. demand.
Cook said high international crude oil prices may have led Chinese refiners, who are hampered by government caps on domestic refined product prices, to cut runs. But it's difficult to know for sure by how much. Because China doesn't release up-to-date crude and product inventory data, it's also difficult to access the impact of any run cut, he said.
There's no reason for strong global demand for diesel and other middle distillates to abate, especially as the market enters peak demand period in the autumn, Cook said. Heating oil futures soared Monday in New York to $1.7169 a gallon on news of refinery trouble, and retail prices are already higher than they were last winter.
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