Snowfalls may reduce oil demand
CHINA’S worst snowstorms in 50 years will reduce oil demand in the world’s second-largest crude consuming nation as snow keeps cars off highways and fuel from reaching power plants, Lehman Brothers Holdings says.
The investment bank has reduced its forecast for growth in Chinese oil demand for 2008 to 340,000 barrels a day from 400,000 barrels a day.
‘‘ With movement of both goods and people restricted by air, land and road bottlenecks across the country for a month or more, demand for petrol, diesel and jet fuel for transport could drop,’’ say analysts led by Edward Morse, chief energy economist. ‘‘ Industries unable to source raw materials or power owing to coal, diesel and power shortages may also curtail demand for oil.’’
Lower demand in China may contribute to a decline in global oil prices as an economic slowdown in the US, the biggest energy user, dampens consumption. Crude fell in New York as much as 65 cents, or 0.7 per cent to $92.94 a barrel.
The snowstorms caused about 80 billion yuan ($11 billion) worth of losses, toppled 300,000 homes and damaged 90 million hectares of crops in 19 provinces and regions, according to the Xinhua news agency, which cited the Red Cross Society of China.
Road transport volumes dropped 20 per cent in January and February, according to the Lehman report. Snow blocked the transport of coal to power plants, shutting 7 per cent of China’s capacity.
The last time China faced widespread electricity shortages, consumers turned to oil- fired generators, an option the country doesn’t have this time, Lehman says.
‘‘ Unlike the power shortage of 2004, transport bottlenecks and depleted stocks from diesel shortages experienced just 3 months ago are limiting oil-fired power generation gains to just 25,000 barrels a day,’’ the report says. Lehman Brothers cut their forecasts for petrol and diesel demand by 275,000 barrels a day in the first quarter. Over the whole year, demand will be 35,000 barrels a day less for both products, it predicts.
Storms reduced rail transport in China by 10 per cent this year. The distance motorists drove is estimated to be down by 25 per cent, Lehman says. Air travel was also affected, with 3250 flights cancelled and 5550 delayed, the bank says.
China Southern Airlines Co., the nation’s largest carrier, said earlier this month that the snowstorms would cost it at least 100 million yuan ($14 million). Bloomberg
All hands: Soldiers clear snow. Millions of Chinese were stranded by snow that blanketed parts of central and southern China