China: The Ultimate Decider on Crude Oil Prices

18 Pages Posted: 2 Oct 2013

See all articles by Mamdouh G. Salameh

Mamdouh G. Salameh

Oil Market Consultancy Service / ESCP Europe Business School, London

Date Written: September 30, 2013

Abstract

The single most important driver of shifting dynamics in world oil markets is China. It alone will continue to account for most of the world demand growth throughout this decade and probably the next. By October 2013, China’s net oil imports are projected to exceed those of the United States on a monthly basis and by 2014 on an annual basis, making it the largest importer of oil in the world. In order to satisfy its thirst for oil, China has aggressively used its financial reserves to offer billions in development credit, underwritten with oil, especially in Africa, Latin America, and even Russia. From energy security point of view, one of the biggest threats to maintaining a stable oil price in the long run will be satisfying growth in Chinese demand. That is what is putting pressure on prices. An optimistic oil price could range from $100 to $130a barrel. However, this paper will argue that in a supply-constrained world and with OPEC’s spare capacity continuing to shrink, oil is unlikely to spend much time hovering around that price range. It will suggest that prices will continue to spike over the next five years occasionally reaching $200/barrel in order to keep oil demand in check. The paper will also argue that the global economy can at most sustain oil prices that represent just about 6% of GDP translating into $137 a barrel of Brent crude by 2015, $156 by 2020, and $241 by 2035. It will conclude that China’s steep-rising oil demand, its search for new sources of oil and also its acquiring of oil assets around the world will ultimately give it the final say on the oil price globally.

Keywords: China, price, growth, energy security, superpower

Suggested Citation

Salameh, Mamdouh G., China: The Ultimate Decider on Crude Oil Prices (September 30, 2013). USAEE Working Paper No. 13-141. Available at SSRN: https://ssrn.com/abstract=2333980 or http://dx.doi.org/10.2139/ssrn.2333980

Mamdouh G. Salameh (Contact Author)

Oil Market Consultancy Service / ESCP Europe Business School, London ( email )

Spring Croft, Sturt Avenue
Haslemere
Surrey, GU27 3SJ
United Kingdom

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