Europe Economy

Will Chinese Oil Demand Trump Global Growth Concerns?

Oil prices fell on Thursday as investors grew increasingly concerned that the European debt crisis could hit France next and hit growth, but demand for oil from Chinaand other emerging markets will continue to underpin oil prices in the long term, analysts told CNBC on Thursday.

off shore oil rig

"People are very concerned about what’s going to happen to the economy. But we haven’t seen oil fall back nearly as much as equities," Simon Wardell, Director of Global Oil at IHS CERA Oil said.

"We’re probably not going to see an implosion in demand. We are not forecasting a double dip yet,” he said.

Wardell said that although a slowdown was likely, he did not expect more than that. "The fundamentals are still there supporting a reasonably high oil price."

Nymex light sweet crude, currently trading around $82 a barrel has lost over 15 percent over the past three months.

It has come off highs in the last two to three weeks in particular. London Brent crude is trading around $100 a barrel.

“China demand continues to underpin oil at the $80 mark. It’s all about Chinese oil demand really,” Wardell said.

Azlin Ahmad, crude oil editor at Argus Media added that Chinese stockpiling could also support prices.

“If prices fall quite significantly, there’s a good chance that the Chinese will come out and stock up,” she said.

“China demand is the big question. It depends on inflation and what they do with their interest rates,” Ahmad said.

Consumer prices have been rising steadily in China, undeterred by three benchmark interest rate hikes by the Bank of China so far in 2011.

“We haven’t seen the OECD bounce really back from before 2008. We don’t expect much more growth from the OECD. It is all about China, India and other emerging markets. If we saw signs of something worse in the economy there, we’d see a much bigger impact on the oil prices,” Wardell said.

Ahmad expected Brent prices to continue to hover around $100, while Nymex would be slightly above $80 in the medium term and did not expect OPEX to make any changes in production.

“With 100 dollar oil, even if it’s at 90, I think there would be very little incentive for them to reduce production,” she said. “Only if prices fall to 70 then I guess they would consider but not in the short term.”