China oil manufacturing slows

Tuesday 1 Mar 2011

Experts talk: fears of oil supply downs brings prices up

Chinese manufacturing growth slowed in February to a six-month low, according to an official survey, as the government's sustained campaign to tame inflation weighed on industrial activity.

Although China's economic growth is expected to slow slightly this year, the world's second largest oil consumer still has strong demand for crude and products to feed its expansion, said Yuichiro Sakaki, a Tokyo-based trader at Mizuho Securities.

China is targeting 7 per cent per year annual economic growth from 2011-2015, down from the average growth of 11.2 per cent in the last five-year period.

Oil price spikes could cause dislocations to the world economy, JPMorgan analysts warned.

Amid fears of supply shortages due to Middle East revolutions, JPMorgan also stated that "a steep rise in oil prices that is caused by a supply loss is likely to be more damaging than one that is driven by robust demand."

Separately, the International Monetary Fund warned extended higher oil prices would hit world growth.

In the US crude stocks were expected to rise 1.2m barrels last week while inventories for oil products are likely to fall, a preliminary Reuters’ poll showed.

"While further escalation of tensions could trigger renewed price spikes, we think oil is expensive from a fundamental perspective," Credit Suisse analysts said in a 1 March note.

"Hence, we expect oil prices to pull back to pre-turmoil levels once geopolitical risks subside."

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