In its monthly report, the IEA increased global oil demand forecast by 0.1% , or 80,000 barrels per day, to 86.85 million barrels per day. The IEA serves as an energy advisor to 27 industrialized nations, including the United States, United Kingdom, Germany, France, and Japan. Oil rose $1.03 to $137.08 per barrel in Thursday morning trading.
Economist David H. Wang told BloggingStocks Thursday he expects China's oil demand increase in 2008 to be "roughly in-line with the IEA's 5.6% growth forecast."
"China may end up registering oil demand growth less than 5.6%, if the Chinese Government continues to gradually increase the retail price of gasoline and diesel," Wang said. "My research indicates we are not seeing demand destruction yet in China, but this could change. Gasoline now costs about $3.30-$3.50 [per gallon] and if China approves another round of increases, demand could begin to be pinched, as it has in the United States."
Another gas price hike in China?
However, Wang said investors / traders should not assume another gasoline price increase nor lower oil demand in China. "China is trying to take pressure off energy prices and slow its economy, but there's only so much they can increase prices before they have serious consequences on its economy," he said. "The middle class can withstand the price increases but may others with lower incomes can not."
Concerning oil prices, the IEA said plus-$135 per barrel oil is being supported by a meager Q2 oil inventory build, tight distillate markets, and ongoing geopolitical risks.
With the above in mind, economist Glen Langan noted that while the IEA increased its global oil demand forecast by a minor amount, the agency's data on counter-seasonal Organization of Economic Cooperation and Development oil inventory build was modest, due to inventory draws in the United States. "The IEA said OECD inventories rose by about 100,000 barrels per day in the second quarter, well below the 900,000 per day norm for the quarter," Langan said. "The second quarter is the lowest oil demand quarter of the year, due to the start of spring in the northern hemisphere and inventories typical rise a lot during the period. The fact that it didn't helps explain some of the oil price increase during the quarter."
Oil Analysis: In all, a mild IEA monthly oil report, with only a minor increase in its 2008 global oil demand forecast. Still, as economist Langan noted, executives, analysts, and traders will keep an eye on U.S. and OECD inventories: continued inventory declines will maintain upward pressure on oil prices, assuming global economic growth does not slow in Q3 and Q4.
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