China Afraid of Fuel Demand Crisis

Chinese fuel oil demand in 2006 may not recover from this year's slump amid the high global oil prices and depressed refining margins by China's tight lid on auto fuel prices, industry sources say.

Demand for the heavy refinery product, of which China is Asia's top buyer, is also threatened by natural gas to fuel power stations as the country opens its first liquefied natural gas import terminal in about nine months.

The International Energy Agency forecast daily fuel oil demand to rise 2.7 percent next year to 806,000 barrels, after a 5.4 percent fall in 2005, the first drop in three years, as key consumers industries and small refineries that process it into motor fuels were forced to shut down or cut output.

The Chinese factories could no longer bear the scorching fuel costs. Many are switching to cheaper substitutes.
Official data showed China's fuel oil imports declined 16 percent to 470,000 bpd in the first eight months, compared with last year's 30 percent rise. Fuel oil accounts for about 13 percent of China's total oil use.