Oil demand in China: an econometric approach

Abstract

Purpose

This study intends to explore the determinants of Chinese oil demand and to build a short‐ and long‐run model.

Design/methodology/approach

The study uses the Engle‐Granger two‐stage cointegration method to create a dynamic short‐run model. Data is taken from both international data sources and the Chinese authorities themselves.

Findings

The research largely confirms current research in the area. The error correction model finds that only vehicle numbers and real GDP are determinants of the demand in the short‐run. The model also shows that there is a fairly slow adjustment from the short‐run to the long‐run model.

Research limitations/implications

The model also shows that there is a fairly slow adjustment from the short‐run to the long‐run model. Both models find that structural breaks exist in the data and dummy variables were significant in allowing for the regime change.

Practical implications

The policy implications not only for China but the whole world are clear. China's demand for oil is growing at a rate that will be difficult to sustain. The world's refineries are currently trying to work at capacity as far as possible to take advantage of the high‐oil prices, which continue to rise.

Originality/value

This paper provides ongoing confirmation of the importance of China's oil consumption on world markets.

Citation

Hölscher, J., Bachan, R. and Stimpson, A. (2008), "Oil demand in China: an econometric approach", International Journal of Emerging Markets, Vol. 3 No. 1, pp. 54-70. https://doi.org/10.1108/17468800810849222