Oil demand may take hit

• Source: China Daily
• [10:19 April 29 2009]
• Comments

By Xiao Wan

China's demand for oil may be dampened by the spread of swine flu, as the tourism and transportation sectors take the brunt of any possible pandemic, analysts said.

There would be further cuts in domestic fuel prices if global crude prices keep falling on fears that the spread of the epidemic could weaken global oil demand, they said.

"Cutbacks in international travel will compound drop in domestic jet fuel consumption," said Han Xiaoping, chief information officer of China5e.com, a website that tracks China's energy sector. "If the situation gets worse, non-freight public transportation such as buses and taxies will be affected, resulting in decreased oil consumption."

Han pointed out that oil consumption by the non-freight transportation sector now accounts for around one-third of China's total oil consumption.

The outbreak of the Severe Acute Respiratory Syndrome, or SARS, in 2003 crimped air travel in Asia, and reduced global oil demand by about 1 percent between April and June of that year, analysts at JPMorgan said in a note.

Global oil prices fell to near $50 a barrel on Tuesday. "If it (the price) sees a continuous fall, the government will consider adjusting domestic refined oil prices," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

This year's fuel price adjustments would be done via a new pricing system, which would take into account movements in global crude prices over a 20-day period, the National Development and Reform Commission (NDRC) had said earlier.

The government will consider adjusting prices of refined oil products if the global crude price rises or falls by 4 percent or above over a 20-day period, the NDRC had said.

Goldman Sachs analysts said in a note on Monday that they saw US benchmark oil prices pulling back to the "mid $40 a barrel range" in the near future, which was likely to shore up demand and bolster the market.