Oil prices are on the rise again as the International Energy Agency is the latest forecaster to increase their expectations for China oil demand. Yet the IEA went far beyond just increasing demand expectations for China and they said that the demand growth that we have seen so far is astonishing. The IEA beat all the other forecasters by predicting that world demand will increase by 70,000 barrels a day to 86.6 million barrels or close to 1.6 million barrels more than a year ago. Their comment that Chinese demand surged by an "astonishing" 28% year-on-year in January has captured the imagination of the marketplace. That led to the IEA astonishing forecast for a growth in China demand to increase by 130,000 barrels a day to 9 million barrels a day, representing an increase of 6.2% from 2009.
Of course, despite all of these rising demand expectations, is China on an unsustainable path? First it was the Department of Energy, then it was the OPEC cartel and now it is the International Energy Agency. Yet this demand growth is not without risks, both political and economic, and the White House may be raising the stakes and the pressure on the Chinese to let some air out of this risky China bubble and adding to tensions.
China's economy is leading to a global recovery but also is adding to tension between China and the Obama administration. Yesterday the Obama administration promised a mini-cabinet to focus on imports. He also called on the Chinese to embrace a "market-oriented" exchange rate policy. President Obama also said he would start to enforce existing trade deals but what made the Chinese mad was that was the currency comment.
Long story short, the Chinese bubble may the biggest threat to the global economic recovery.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.