Implied Oil Demand in China Up 0.1%

China’s implied oil demand nudged up a minimal 0.1% in November from a year earlier, quashing expectations that growth in demand by the world’s second-largest crude consumer would revive at year’s end.

Imports of crude oil slid to the second-lowest level since January and exports of heavier products rose, as the effect of measures designed to keep fuel in China appeared to fade.

The year-over-year growth rate was skewed by high numbers from the previous November, however, and implied demand -- net imports plus refinery output but excluding inventory changes that are not reported -- actually rose from October to November.

China used 6.42 million barrels per day last month, compared with 6.27 million barrels per day in October, according to calculations released Monday by Reuters using official trade and output data.

Chinese demand has been hard to predict -- unnerving traders with a 15% leap last year before collapsing back to barely one-fifth of that in 2005 -- in part because of the country’s reluctance to reveal how much oil its companies have stockpiled.

Implied demand had jumped year over year in September and rose firmly in October, heightening expectations of a recovery. Some analysts had expected that as winter deepened, heating needs would drive demand growth, but November data damped that hope.

Although refineries ran at near record levels, they posted the weakest growth in output since February as they neared maximum capacity and apparently drew down crude stocks, while net imports also decreased from both October and 2004 levels.

For the first 11 months of this year, China’s implied demand rose a subdued 3.3%, roughly in line with the International Energy Agency’s recent forecasts for a 3.1% expansion through 2005 -- although far below growth predictions the agency made earlier this year that were as high as 7.9%.

The Organization of the Petroleum Exporting Countries last week held its first talks with Beijing, seeking information about demand and inventories in a country the cartel said had changed the culture of world oil markets by reducing seasonal swings in consumption.

Many analysts are forecasting that Chinese demand for crude could grow by 6% or more next year, but they warned that government pricing policies could stifle consumption, as they did this year in Guangdong.

“Chinese demand in 2006 will be set by the choices that Chinese authorities make in fixing the ceilings for retail prices,” SG Commodities said in a recent research note.

Beijing sets tight caps on pump prices and for most of this year they have languished well below global markets, so refiners selling into the domestic market often have to swallow a loss.

They responded by cutting supplies at home and boosting more-profitable exports, which created shortages across the southeast, turned highways into parking lots and unnerved officials.

Worried about the dry pumps, but also nervous about the political and inflationary risks of pricier fuel, government officials drew up a slate of export curbs and import incentives that aimed to secure fuel through policy instead of free-market mechanisms.

Officials have said the curbs would continue next year, with quarterly oil product export quotas -- Beijing’s toughest control on fuel shipments for years -- due to be introduced as a flexible extension of measures that required refiners to seek government approval on a monthly basis for gasoline or diesel export sales.

China has forecast that demand would increase 6% next year.