Investment Conclusion
Falling car sales in China hardly seems a positive indicator for oil demand. Dig a little deeper, however, and
there has been little correlation between car sales growth and gasoline demand growth. What matters more,
is gasolines prices – and they remain low. Over the past year, gasoline demand has responded strongly to
lower prices. Moreover, cheap gasoline prices appear to have stimulated a mix shift from sedans to SUV's.
Fuel efficiency in China is growing at its slowest rate in years. While falling car sales over the long term
would be a risk (although we think this is unlikely) slowing car sales should not be reason in itself to fret
about slowing gasoline demand.
For oil prices to recover, demand needs to remain strong. As we move into the second half of 2015 there is
certainly plenty to worry about. US dollar strength, rising interest rates and more shaky macro-economic
data out of China are all risks to demand going forward. Nevertheless, the cure for low prices is low prices
and as long as gasoline prices stay low this should be positive for demand.
