Oil demand: not just a China story

By Kathleen Brooks, Research Director Forex.com

China has become the world's largest energy consumer; the Asian powerhouse's share of global consumption is now above 20%, more than that of the US. And with GDP growth still in the high single figures in China, oil consumption is likely to rise even further in 2011.

But what was surprising about the latest data was the strength of developed markets' demand for oil; in 2010 consumption growth in OECD countries was the strongest since 1984. So demand for oil isn't only coming from the emerging world, the developed world is also thirsty for crude.

The spike in demand from both the developed and emerging world last year may come as a surprise, especially as growth rates in the East are far-outpacing those of the West. But, with economies in the West trying to boost their energy-intensive manufacturing bases and re-balance their economies away from consumption and towards exports, oil demand in the developed world may continue to grow at above average rates for some time yet.

Increased focus on sustainable growth, clean energy

The background for the pick-up in global oil demand is increased focus on clean energy, sustainable growth and reducing carbon emissions. This is due partly to environmental concerns but also due to high oil prices as Brent once again heads towards $120 per barrel. The rising cost of oil is a problem not just for cash-strapped developed economies in Europe and the US, but is also a concern for China.

BP chief Bob Dudley, in a statement accompanying the release of the Statistical Review, did not sound complacent about China's continued demand for carbon fuels: "Growth is by no means the only game in town (in China). They want to maintain social cohesion and they want to make their growth more sustainable. In sum, they are worried about energy security and climate change..."

So just as we are all consuming more of the stuff than we have in years there is growing unease about our use of oil as the primary source of energy. But the latest oil stats show some worrying trends. Oil demand grew at a faster rate than the global economy in 2010, which suggests the energy intensity of economic growth has increased for the second year running. So the focus on clean fuel isn't feeding through to our energy habits.

In 2010 we generated more emissions than ever, which is concerning, especially for developed countries that have signed up to the Kyoto Protocol. The latest data throws a spanner in the works to achieving the target 30% cut in carbon emissions by 2020. Added to this, the European Union - the world's largest economic bloc - has also set itself a minimum target for biofuel use of 10%, also by 2020. This deadline is fast approaching.

Attitudes towards oil use all over the world will need to change dramatically in the coming years, and not just in the emerging world, as you can see, the developed world is also finding it hard to wean itself from the oil pump.

But until either the technology improves to bring green energy use to more people in both the developed and developing world, and prices become more competitive then this global economic recovery will continue to be fuelled by carbon.