China’s Oil Demand Slackens

The General Administration of Customs said China’s crude oil imports were 253.8 million tons in 2011. The figure in December was modest by recent standards — only 21.9 million tons. Bloomberg reports that the annual figure was higher by 6%, but that the December number was down from the same month a year ago. The data offer some hope that oil prices will not remain very high, even with problems in the Middle East and Iran.

China is the world’s largest importer of crude. It passed the U.S. in that category more than a year ago. The insatiable demand for oil to drive the manufacturing machine of the People’s Republic, and its transportation as well, has been a significant cause of the unusually high price of oil over the past three years.

The first reaction to China’s overall import numbers for December was to suspect that its consumers have become worried enough about their national economy to have curtailed their buying activity. Chinese factories may need less material to make finished goods for export — an action that would bring down imports of raw materials. China is a large enough importer of goods and services that a drop in its growth will hurt GDP among its trading partners, which include particularly high levels of activity in the U.S. and EU.

The cost of oil is considered one of the greatest threats to global GDP growth. No one knows what price level would tip much of the world back into recession. Crude has been above $80 most of the past year. That by itself does not seem to have hampered improved economic growth in the U.S., but who can tell if the improvement would have been stronger if oil traded at $50 a barrel during 2011. The EU could use any help as it tries to revive growth in its weakest economies, so $100 oil prices for an extended time would be a dangerous drag.

The Chinese oil data does offer a little hope for oil prices. Some analysts believe that an interruption of shipping through the Strait of Hormuz could push crude above $150. That would be a disaster for the world economy. There are some offsetting factors, though. One is the chance that some nations would release supplies from strategic oil reserves. Another is that traders cannot gamble that China will continue to have an increased appetite for oil.

Douglas A. McIntyre