With the topic of oil once again dominating the air waves courtesy of Goldman's most recent flip flop on Brent, we look at one of those thing that few if any have actually done much analysis on over the past decade, namely supply and demand. As it is no secret that the primary driver in price formation of virtually all commodities has been excess liquidity, the actual fundamentals have been drowned for a long time. Yet they still remain. Of all "demand fundamentals", the biggest one is and will be China. Should the world indeed proceed to tighten across the globe, the question of Chinese demand will increasingly become one of substantial importance. Here is how Platts sees Chinese oil demand in the next several years: "China's demand for oil will grow 4-5% a year to hit 530 million-560 million mt (10.6 million b/d-11.3 million b/d) in 2015, with transport fuel and chemical feedstocks driving the increase, a senior Chinese researcher said Wednesday." Platts estimates that China's current oil consumption is about 450 million mts, a 12.2% increase over the past year. And following 2015, "Growth will then slow to 2%-3% a year, to reach 590 million-650 million mt by 2020, said Liu Xiao Li of the Energy Research Institute, part of China's economic planning agency, the National Development and Reform Commission. With oil production in 2020 expected to be 200 million-230 million mt, that would imply an import dependence of around 65%, she added." One can thus see why China is ever so cautious proceeding to procure E&P exposure and infrastructure projects around the world: the country realizes that without a friendly foreign "import" base, there is no way it can grow into its energy demand. Lastly, for those who collect parity facts, "in a presentation at the International Air Transport Association's Aviation Fuel Forum, Standard Chartered Bank said China would overtake Europe as the world's second largest consumer of oil before 2020, with around 13 million-14 million b/d of demand. The bank's data indicates China would catch up with the US sometime after 2030. Standard Chartered's data has China's oil demand approaching 17 million b/d around that year and still rising, with US oil demand around 18 million b/d and falling." Luckily by then we should have far more evidence whether the Peak Oil theory is indeed true, in which case the world will have far greater problems in the next 19 years than anything seen to date.

More from Platts:

China's strategy to mitigate the risk associated with such a high dependence on imports includes efforts to improve energy conservation and efficiency; increased focus on domestic exploration and production; increased investments in oil and gas abroad; diversification of import sources; and the development of alternative transport fuels.



The NDRC's research showed that China's apparent oil and oil product consumption in 2010 was 449 million mt, up 12.2% over 2009.



China does not release official oil demand statistics, and reporting agencies often have differing figures for the country's apparent oil demand.



Platts calculates the country's oil demand based on official data on refiners' crude throughput and net oil product imports.



Platts' analysis for 2010 put China's apparent oil demand up 11.43% year- on-year at a record 434.40 million mt, or an average 8.71 million b/d.



Transport fuel made up 65% of the demand and agriculture and fishing 15%, said the NDRC's Liu; and crude oil imports were at 236 million mt in 2010, up 19% over 2009. Import dependence last year was 53.8%.

As a benchmark, "US demand for crude oil and other liquid fuels is currently running about 19 million b/d."