Slump in Chinese oil demand is forecast

SINGAPORE (Reuters) -- China's freak winter will slow growth in its demand for oil this year, as factories, cars, and trains suffer from the same freeze that left millions of travelers stranded, Lehman Brothers said.

In a note to clients, Lehman predicted that China's oil demand would rise this year by 4.5 percent, or 340,000 barrels a day. Its previous forecast was a rise of 5.3 percent, or 400,000 barrels per day. Demand for oil grew 6.8 percent in 2007, according to official estimates.

Lehman said it had cut its first-quarter forecast for gasoline and diesel demand by 275,000 barrels per day as rail transport dropped as much as 10 percent so far this year and road transport volume was seen to be down by as much as 20 percent in the first two months.

The unusually harsh winter, worst in a century, froze roads and railways across central, southern and eastern China and caused a dip in transport volumes at a time when hundreds of millions were supposed to travel for the Lunar New Year holidays.

""Our view is that the problem is not going to be completely over before the end of this week,"" Lehman said.

China's meteorological center predicted more sleet and snow in the coming days for some parts of China, like the already hard-hit province of Guizhou in the southwest and the provinces of Qinghai, Gansu, and Sichuan in the far west.

With several coal-fired power plants shut because of a shortage of coal stocks and transportation bottlenecks, some factories will be unable to receive raw materials or power supply, further reducing oil demand. By the end of last month, 7 percent of the country's total installed power capacity was shut because of the fuel shortage, Lehman said.

But the winter snows will tighten global supplies of aluminum, Lehman predicted. China produces one-third of the world's aluminum, it said, and the snow put 12 percent of its capacity offline because of power failures.

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