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California Consumes More Oil Than China: Fact or Market Manipulation?
By Dian L. Chu, Econforecast
In this clip, and article dated Nov. 17, CNBC's Sharon Epperson quoted an analyst's note from HSBC pointing out that California currently consumes more crude oil than China.
As I do not have a copy of the HSBC report, and therefore cannot verify how the conclusion was reached; however, it is hard for me to fathom California even belongs in the same sentence with China on any economic measures.
Fortunately, since crude oil is probably the most widely traded commodity in the world, its relatively better transparency could quickly shed some light as to this new finding from HSBC. .
Fact - CA Oil Consumption is 23% of China’s
A search of the statistics from the U.S. Energy Information Administration (EIA) show the top three oil consuming countries in 2009 were: United States - 18.7 million barrels per day (bpd); China - 8.12 million bpd (that’s around 3 billion barrels per year); and Japan at 4.4 million bpd.
As for California, EIA latest data show 682.6 million barrels a year as of 2008, or around 1.9 million b/d--23% of China’s 8.12 million b/d consumption. However, the consumption rate of California has probably dropped way below the 2008 level since it is one of the hardest recession-hit states in the U.S.
GDP & Population – Not Even Close
Another way to assess the possibility that the claim could be true (assuming HSBC has more resources than the U.S. government) is to look at the macroeconomic measure.
Though oil consumption is a function of many market and economic factors, the size of the economy (GDP) and population are two pretty good indicators.
It is true that California's economy is the largest of any state in the U.S., and ranks eighth in the world. According to U.S. Department of Commerce estimates, California’s GDP (gross domestic product) was nearly $1.85 trillion in 2008 (The number should be considerably lower now.)
China, on the other hand, boasting a GDP of $4.9 trillion in 2009 (that’s three times California, by the way), has recently leaped ahead of Japan becoming the second largest economy in the world trailing only the United States.
Population-wise, with just over 1.3 billion people, China is the world's most populous country, whereas California’s population is around 37 million, less than 3% of China’s.
China Matters A Great Deal in Crude
Now let's take a look at China's oil demand outlook. Contrary to the HSBC's implication, according to a Platts analysis, Chinese crude demand in September rose 5.1% year-on-year to an average of 8.68 million bpd. An IEA report earlier in October also indicated Chinese oil demand surged by 8.5% in August on a 12-month basis.
That suggests the much fretted tightening by Beijing to fight off inflation most likely will contribute to a couple percentage reduction at the most in oil demand growth--5-6% range instead of 7-8%. Not to mention Beijing is also expanding their strategic reserves on almost every commodity, crude oil in particular, which could be counted as "inelastic demand."
Needless to say China's energy and oil consumption is only trending up and a major price driver for oil in the foreseeable future.
California Dreaming
While this could be hard to take for some people, but could California, with one third of the GDP and 3% of the population of China, be one day consuming more oil than China? As the old adage goes “Never say never,” the best answer would be - highly unlikely with extreme low probability.
Fact or Market Manipulation?
Based on the discussion so far, HSBC statement seems to defy many indicators as well as known statistics. Why would HSBC issue such a report to the investment community? One could only speculate it’s probably a maneuver to manipulate the market (pending review of the supporting data, if any, to HSBC's conclusion.)
Due to the massive liquidity unleashed by the continuing global quantitative easing, banks and markets are flushed with cash and playing big in both stocks and commodities. And truth be told, China’s growth is the only exciting news driving up the markets these days.
As such, it is easy for large institutions and funds using “China” to pump their positions —short or long. Since Epperson covers the NYMEX floor for CNBC, this bearish information on crude oil from HSBC mostly likely was spreading across the trading pit.
And quite coincidentally, a considerable liquidation of the crude long positions took place after CNBC and HSBC revealed the “China vs. California” note, which may have had a positive effect on HSBC’s end-of-year quarter.
???
Trader's Market
Right now, Fed's QE2 most likely has added at least $10 to crude prices, and funds flow along could probably control $100 crude oil price movement, up and down (Remember the drop from $140 to $40 per barrel in six months during 2008 to 2009?)
So, moral of the story...since the U.S. is still the largest oil consuming country in the world while Cushing is brimming with one of the highest inventory levels on record (359.7 million barrels as of Nov. 28, about 20 days worth of U.S. usage--contrary to the claim in the CNBC article that U.S. has half a year worth of crude), and with so much liquidity around, market fundamentals will likely take a back seat while traders run the show in crude market, at least in the near term.
And by the way, crude oil just jumped about $8 in the past week--on very little fundamental change--to close above $87 a barrel today on NYMEX, while Brent crude even topped $90 a barrel flipping into backwardation, where near month deliveries cost more than later shipments (Bear in mind, unlike WTI in the U.S., Brent crude and Europe do not issue weekly oil inventory report.)
Related Reading:
Swimming In Crude Oil? Record High Inventory Will Continue To Build
China: Investing In The US After Unocal
Dian L. Chu, Dec. 2, 2010 
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Yes, isn't amazing that reporter sometimes 'report' things/numbers that are not even close on the face of it...i mean that common pool of knowledge most laymen know...Fact checking on Blogs is next to non-existent...no copy editors, eh, no?
"So, moral of the story...since the U.S. is still the largest oil consuming country in the world while Cushing is brimming with about half a year worth of crude"
hum...really? i think 3420 million barrels is about 6 months of USAoil consumption...
i think, not fact-checking that Cushings has about 40 million barrels, and that the USA consumes about 18-19 million barrels per day...for a long long time the NYSE+commodity exchanges tried to convince the World that Oaklahoma sweet light oil was the benchmark....well actually it was about a scheme mostly engineered by Morgan Stanley...already forgotten, so soon.. the scheme was to ladder-up the futures on oil/gasoline to $150/barrel oil and $4.80 gasoline...you? We remember? June 2008...? memory returning...
Cushing, these days has been 'demoted' pretty much and i think that Morgan Stanley hasn't been leasing, for some time, any of the full of oil storage tanks at Cushing....the usual, these days is to lease spare tankerage...for oil price speculation
CNBC News Flash;
California buys more Chinese exports from China than China buys Chinese exports from California.
...so... is that California efficiency or inefficiency?
HSBC is massively invested in China and thus lives or dies by the Chinese market - anyone out there have an explanation as to what HSBC, itself, would be up to in trying to manipulate the oil market?
So compared to China California is incredibly efficient.
Probably not, just incredibly smaller: 1.3 billion vs 37 million.
facts and truth are NOT req'd these days. Say whatever you want and if it sounds reasonable, plausible, it usually wont be questioned.....propaganda technique, easily used when people are no longer paying attention, or inundated with superfluous information
So, to boil it all down then...
... is a complete load of shit.
Talking heads are full of misinformation. First time I've ever heard one called for it. And corrections? Rare.
About time speculators move over from the silly stock market to pump oil (and natural gas with the very snowy winter in europe); gold and silver are hovering at all-time highs, oil to gold ratio is no where near those highs. So pump away with Benny's toilet paper, and that will be the best weapon to kill Ben's scheme; as Rosenberg says, $3/gal is the line in the sand; $4/gal the US of A will implode; $5/gal and Benny will become history, QED.
California is way over rated, but it was once paradise.