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Home >> Business
UPDATED: 16:43, January 21, 2005
China's oil demand to remain high in 2005
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China's appetite for oil will remain voracious this year, although growth in consumption will slow, according to China's largest oil company.

The country's consumption of crude will increase to 320 million tons, Chen Geng, general manager of China National Petroleum Corp (CNPC), was quoted by as saying Thursday. The website is owned by the company.

The projected consumption represents an almost 12 per cent increase over last year's figure of 288 million tons.

But the industry will see a drop in the growth of consumption, which stood at a full-year 14 per cent in 2004.

Speaking at the company's annual conference, Chen said China's consumption of refined oil products, such as diesel and petrol, is likely to rise by 8.3 per cent to 170 million tons in 2005, another slowdown on last year's figure of 19 per cent.

"Domestic demand for oil and petrochemical products remains robust and consumption keeps rising, providing a enormous market for oil companies," Chen was quoted as saying.

Gong Jingshuang, a veteran oil market analyst with a consulting institute under the CNPC, said one of the major driving forces for the increase in oil demand is heavy oil-consuming industries such as the automobile, steel, agriculture, housing and transportation.

In addition, as China allows more companies to operate in the oil sector, the demand for oil stocks will increase, Gong said.

"But growth will decelerate this year as the government's measures to cool down overheated sectors take effect," said Gong.

In April last year, the government began reining in the galloping economy by curbing investment in many energy-consuming industries such as steel, cement and aluminium.

This will contribute to a drop in China's GDP growth from 9 per cent last year to an estimated 8 per cent in 2005, experts said.

China's power shortage is also expected to ease this year, helping mitigate the demand for oil to generate power, according to Gong.

CNPC's Chen predicted demand for ethylene, a major petrochemical product, will increase by 7 per cent to 19.4 million tons this year.

And consumption of other major petrochemical products is set to rise by 6-8 per cent year-on-year in 2005.

Strong market demand, along with the spike in oil prices last year, helped the CNPC post a record profit increase of more than 50 per cent in 2004.

Chen said international oil prices will continue to hover at a relatively high-level this year.

The strong oil price is conducive for oil exploration and production, weighted on the refining and sales side of the business.

The Chinese Government controls domestic prices for oil products by setting benchmark retail prices.

Increases in the price of domestic oil products tend to lag behind international rises as the government is wary of the effects to the national economy.

"Cost increases squeeze profit margins, although strong domestic demand will help expand refineries' output," said Chen. "The high oil price is a double-edged sword."

Chen also said competition in the oil market will intensify as the country opens up the sector in line with the requirements of the World Trade Organization.

Source: China Daily

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