Report Questions Rationale for Chinese Oil Imports
A Merrill Lynch report suggests that China is importing
double the amount of oil from overseas sources that it
is actually consuming. Since oil prices have nearly doubled
in 2004, largely because of political instability in the
middle east and strong mainly consumer-driven demand from
China and India, it raises the question: Why?
The report was issued by the company's London office.
According to the report, China needs an estimated 500,000
more barrels of oil each day, but is importing 1 million
barrels daily. The report suggests that this is a temporary
situation, and points out that India is also importing
more oil than it consumes.
The report says that it expects oil prices to fall back
to US$30 a barrel as demand falls back.
Since China's oil importing companies are state-owned,
this suggests that the increased imports at higher prices
are government policy. This raises a question of cause
and effect: Is China importing oil because it expects
oil prices to go higher, or are oil prices higher because
of China's increased demand?
Whatever the reason, it suggests that China has a strategic
oil reserve which it can tap into in an emergency. The
US set up its strategic oil reserve following the Saudi
oil embargo of 1973-74.
While gasoline prices have shot up in the US, gas prices
in China have not changed since May, even though there
has been a strong uptick in demand. Retail gasoline prices
cannot be raised without government approval.
In certain historical instances, countries step up their
oil imports before a conflict so that they have a war
reserve which they can fight with, and oil and gas get
diverted to the military.
Recently, China's threats against the Chen administration
in Taiwan have reached new heights. If oil reserves get
diverted to the military at the expense of the Chinese
consumer, then that would suggest that conflict is more
likely.
So far, that has not yet happened.
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