Oil Shock

China's Cars, Accelerating A Global Demand for Fuel

China's increasing demand for oil is a key contributor to the dramatic rise in global oil prices.
By Ariana Eunjung Cha
Washington Post Foreign Service
Monday, July 28, 2008

SONGJIANG, China -- Nodding his head to the disco music blaring out of his car's nine speakers, Zhang Linsen swings the shiny, black Hummer H2 out of his company's gates and on to the spacious four-lane road.

Running a hand over his closely shaved head, Zhang scans the expanse of high-end suburban offices and villas that a decade ago was just another patch of farmland outside of Shanghai. To his left is a royal blue sedan with a couple and a baby, in front of him a lone young woman being chauffeured in a van.

"In China, size matters," says Zhang, the 44-year-old founder of a media and graphic design company. "People want to have a car that shows off their status in society. No one wants to buy small."

Zhang grasps the wheels of his Hummer, called "hanma" or "fierce horse" in Chinese, and hits the accelerator.

Car ownership in China is exploding, and it's not only cars but also sport-utility vehicles, pickup trucks and other gas-guzzling rides. Elsewhere in the world, the popularity of these vehicles has tumbled as the cost of oil has soared. But in China, the number of SUVs sold rose 43 percent in May compared with the previous year, and full-size sedans were up 15 percent. Indeed, China's demand for gas is much of the reason for the dramatic run-up in global oil prices.

China alone accounts for about 40 percent of the world's recent increase in demand for oil, burning through twice as much now as it did a decade ago. Fifteen years ago, there were almost no private cars in the country. By the end of last year, the number had reached 15.2 million.

There are now more Buicks -- the venerable, boat-like American luxury car of years past -- sold in China than in the United States. Demand for Hummers has been so strong that starting this year, Chinese consumers can buy a similar military-style vehicle called the Predator at more than 25 new dealerships.

Yet strong demand for oil isn't limited to China and its automobiles. Ever since an investment group led by a New York lawyer and a New Haven, Conn., banker came up with the notion of using Pennsylvania oil for lighting in the 1880s, petroleum has been an essential component of the industrial age. It fuels ships, planes and cars, and goes into road asphalt, home heating fuel, lubricants, plastics and petrochemicals.

The United States is the world's single largest consumer of oil, burning through more than 20 million barrels per day last year. This year, U.S. usage is on track to decline the most in 25 years, the result of high fuel prices and a sluggish economy. Still, about one of every eight barrels of oil produced worldwide ultimately ends up in the fuel tank of an American car or truck.

Demand in many developing countries, in the meantime, is accelerating because of the spread of middle-class lifestyles and populist policies that subsidize fuel to keep it cheap.

India's government, for example, will spend $24.5 billion this year on oil subsidies. And that's after subsidies were scaled back in June, triggering riots over the cost of diesel, which fuels most of the country's vehicles, and other oil products. "The hike in fuel prices last month has done little to damp soaring diesel demand," said Seema Desai, an analyst at the Eurasia Group. Indians are paying about $3.60 a gallon for diesel, far below market rates, and demand is still growing at an annual rate of more than 20 percent.

Oil-producing countries are even more generous to their residents. In Venezuela, gasoline costs 12 cents a gallon. In Iran, it costs 41 cents. In Saudi Arabia, it costs 47 cents; in Russia, $3.90.

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