China remains the last hope for stimulating oil demand this year, the president of Energy Intelligence (EI), an energy advisor said yesterday.

Thomas Wallin said that instead of speculations and stockpiling of crude by the Chinese government, actual demand for crude is essential for providing support to the fluctuating prices.

"China remains the only hope this year. Energy demand and oil prices will not rise because of investors and speculators. We need to have concrete demand in China. And that demand needs to come from industries in the country," Wallin told Emirates Business.

Wallin said if Chinese energy demand supports oil prices, they may rise to $60 a barrel this year. "It will be good to see oil rising beyond $60 a barrel," he said.

Wallin's cautious forecast comes slightly at odds to the Bank of America subsidiary Merrill Lynch and London-based Mirabaud securities who see oil rising to $72 a barrel and $75 a barrel, respectively, by the end of this year.

Wallin said oil demand and its price has shown a close correlation to the equity markets this year and are expected to respond to firmer market sentiments. "Contrary to recent market reports that oil prices have become detached to market sentiments, they have in fact developed a closer relationship," he added.

Recent market reports, however, do not suggest that oil demand in China will substantially rise in the months to come. The Organisation of Petroleum Exporting Countries (Opec) recently said demand for oil in China will grow at 40,000 barrels a day in 2009, which is significantly lower than its earlier forecast. The demand growth turned negative in February for the first time in four years. Opec, in its April report, forecast the world demand to slide to 84.18 mbpd, 430,000 bpd lower than its previous forecast. The EIA put the demand at 84.09 mbpd which is 180,000 barrels a day lower than its previous forecast.

The Asian economic giant's oil demand stood at half a million barrels in 2007. It declined four per cent in December 2008. However, the country's consumption in the first eight months of 2008 was such that even as the world's demand for oil shrank by 0.3 mbpd it alone offset the loss by enhancing its demand by 0.37 mbpd.

Wallin is not the only analyst to assert the urgency for a growth in Chinese consumption. Francisco Blanch, the Merrill Lynch commodities analyst, said the demand for industrial goods by China's rising middle class is expected to support oil demand and hence its prices.

There, however, are some green shoots on the Chinese horizon. China's fixed-asset investment, which primarily refers to investments on infrastructure projects, rose by 26.5 per cent year-on-year (y/y) in the first two months of 2009, Judy H Zhu, a commodity analyst with Standard Chartered bank, said recently. Growth in railway sector investment, which forms a large portion of the government stimulus package, surged to 210 per cent y/y in the first two months.

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