Demand in China, Weak Dollar Will Support High Oil Price

Demand in China, Weak Dollar Will Support High Oil Price
By Simon Romero

THE price of oil this year will turn on several developments around the world, among them the rise of China's economy, whether the United States dollar continues falling as many in the industry expect and political uncertainty in nations with substantial oil reserves: Iraq, Russia, Venezuela and Saudi Arabia.

Major developments in any of these areas could cause the price of oil to rise from its current $32.52 a barrel for light crude on the New York Mercantile Exchange. Barring any unexpected or calamitous events, many analysts say it is even possible that the price will slip slightly, possibly to $27 to $30. But the price is expected to remain relatively high.

Fast-industrializing China has emerged as a crucial source of increasing demand for oil, already eclipsing Japan by some measures as the world's second-largest oil market, after the United States. This trend, creating upward pressure on the price of oil, is expected to continue in 2004 as the Chinese economy continues to grow. An annual growth rate of 7 percent is forecast.

China's demand for oil grew 10 percent in 2003, and it is expected to increase 6 percent this year, or the equivalent of an additional 320,000 barrels a day, according to the International Energy Agency. While the strain of coping with the growing thirst for oil may become evident in China's energy infrastructure this year, oil exporters are toasting the emergence of an important market.

Stronger demand in China, and, to a lesser extent in other Asian economies, was a main reason that the Organization of the Petroleum Exporting Countries decided not to cut production at its last meeting in Vienna in December, leaving in place its production limit of 24.5 million barrels a day. None of OPEC's 11 members showed displeasure with leaving the price of oil hovering around $30 a barrel, or $2 more than the top of the group's self-proposed trading range of $22 to $28 a barrel, which is often flouted. ...Continued