Traffic jams in Beijing and air conditioners in Dubai are replacing US highways and suburbs as the driver of global oil prices.
China, India, Russia and West Asia for the first time will consume more crude oil than the US, burning 20.67 million barrels a day this year, an increase of 4.4%, according to the International Energy Agency, or IEA, in Paris. US demand will contract 2% to 20.38 million barrels daily, IEA says.
Economic growth of more than 8% in China and India, coupled with increasing car ownership among the countries’ combined population of 2.45 billion, will more than compensate for falling US demand. Oil use worldwide will increase 2% this year because of growth in emerging markets, IEA says. “Does the US matter anymore?” said Mike Wittner, head of oil research at lender Societe Generale SA in London. “Has the US mattered for the last few years? It is debatable.”
CIBC World Markets Inc., the investment banking subsidiary of Canadian Imperial Bank of Commerce, Societe Generale and Barclays Plc. say oil prices are heading higher because of increasing fuel consumption in emerging markets, regardless of a US downturn.
Oil will average $120 a barrel for all of 2008, against almost $98 in the first quarter of the year, and reach $150 “by the end of the decade,” said Jeffrey Rubin, chief economist at CIBC World Markets in Toronto, who has correctly forecast higher oil prices since 2000. Historically, a recession in the US would lead to lower prices.
IEA says oil demand in both China and India will rise by 4.7%. China will consume 7.89 million barrels of oil a day this year. India will use 2.92 million barrels of oil a day in 2008.
China’s passenger car sales jumped 22% to 6.298 million last year and may rise 16% to about 7.3 million this year. China may boost vehicle output by a million units a year for the next decade to reach 20 million a year by 2017, according to the China Association of Automobile Manufacturers.
Prices may rise as much as $20 a barrel this summer because of West Asian power needs, said Edward Morse, chief energy economist at financial services firm Lehman Brothers Holdings Inc. in New York. A hot summer would likely result in more burning of crude oil for power generation.
“The predominant market view is that the emerging economies will overcompensate for any possible demand slump in OECD countries,” said Eugen Weinberg, an analyst at German bank Commerzbank AG in Frankfurt. “I couldn’t rule out that oil may go to $150.”
The Paris-based OECD or Organization for Economic Cooperation and Development, represents 30 industrialized nations, including the US, Japan and Germany.