Energy Intelligence reported that Chinese crude imports rose by 5.5 percent to 4.04 million barrels per day in May, with Iran becoming the largest supplier.

As per the report, imports from Iran almost doubled to 730,000 barrels per day while imports from Saudi Arabia reached 653,000 barrels per day, which shows a 15.5-percent decline, Steelguru.com wrote.

Imports from Angola dropped 35.5 percent to 483,000 barrels per day, while volumes from Oman rose 70 percent to 319,000 barrels per day and imports from Kuwait almost tripled to 244,000 barrels per day.

Demand from China may be up, according to the International Energy Agency, while global demand for crude is off 2.9 percent year over year.

Although it might be popular and trendy to talk about China being the “next big thing”, the reality is that the tail cannot wag the dog no matter how much it tries.

The United States is still the world’s largest consumer of oil by far. Unfortunately for China, at least for now, the laws of nature will not be rewritten.

According to the most recent CIA Fact Book figures on Oil consumption, the United States currently consumes nearly as much oil per year as the entire European Union and China combined. As a result, based on these figures, when demand from the US is off, the nearly 5 percent China’s increase does not mean much.

When looking at the math, a 4.9-percent decrease in US consumption equates to 1,013,320 bpd lost.

When that figure is contrasted against China’s consumption gain of 6 percent, an increase of 472,800 bpd, the disparity is easily recognizable.

China is not ‘really’ increasing consumption, and as a result will not be able to affect oil prices indefinitely. Over the past several months (since March), China has been attempting to hoard commodity resources through speculative buying. This heavy buying is being led by Chinese stimulus money that has been flowing into its banking system.

Once at the banks, due to lending law differences, this stimulus money is able to be lent out for use within the broad commodities markets. More specifically, Chinese banks are able to book physical commodities as allowable collateral assets and can lend on commodity purchases with physical delivery.

This cannot be done by many other places in the world.

Since lending on commodity investment is allowable, Chinese banks and investors have little reason to pour money into expanding export infrastructure, which is already far too large for current global demand. As a result, the standard in Chinese lending has changed for the time being.

With nowhere else to lend, this type of commodity borrowing has become lucrative for struggling banks and investors alike. To put it quite simply: What is the point in developing more export infrastructure that’s not needed? The recession will eventually end, so rather than increase capacity, existing exporters are trying to deal with the prospects of future: increased input costs and/or inflation.

(Iran Daily & Zawya)