Market Overview

How China Could Drive An Oil Boom In The Coming Decade

How China Could Drive An Oil Boom In The Coming Decade

Exploding demand for passenger cars in China will eventually cause the current weakness in petroleum prices to evaporate, an analyst said Monday.

"Investors with a longer time horizon don't need to worry about OPEC meetings and shale oil production," Jefferies analyst Laban Yu said. "Just buy the entire oil and gas value chain in China."

Market penetration for passenger vehicles in China hit 7.8 percent last year, up from about 1.3 percent a decade ago and compared with 70 percent in the U.S.

China demand drove a "super-cycle" in commodities like coal and iron ore in the past decade and Yu, based in Hong Kong, sees it driving a similar boom in demand for oil and gas in the next ten years.

China's demand for gasoline so far hasn't nearly kept pace with its automotive growth, as the country's fleet increasingly shifts from commercial vehicles to private cars, which are driven far less frequently.

But Yu expects an inflection in China's oil demand stemming from increased car penetration "should happen right about now."

Yu rates at least two Chinese automakers trading on Asian exchanges at Buy, including Great Wall Motor Co Ltd (SHA: 601633) and Chongqing Changan Automobile Company Ltd (SHE: 200625).

Over the shorter term, Yu, raised his 2015 worldwide forecast for Brent crude more than 14 percent to $60 a barrel, a tad lower than the recently unchanged $61 forecast of the U.S. Energy Information Agency.

Three Upgrades

Citing his recently raised 2015 oil-price forecast, Yu upgraded three petroleum producers traded on Shanghai and Hong Kong exchanges to Hold, from Underperform.

Yu's upgrades Monday included the H shares of PetroChina Company Limited (SHA: 601857), the A shares of China Petroleum & Chemical Corp (SHA: 600028) and CNOOC Ltd (HKG: 0883).

Based on Yu's earlier, much lower oil-price estimates, "our earnings estimates were very ugly" for the three companies, Yu said.

Posted-In: Analyst Color Long Ideas Emerging Markets Upgrades Commodities Reiteration Top Stories Markets Best of Benzinga


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