UPDATE 1-China's Jan oil demand growth slows, uptrend seen

By Chen Aizhu

BEIJING, March 13 (Reuters) - China's implied oil demand
growth slowed to 3.3 percent in January after a robust end to
2007, as a harsh winter that knocked out power and stranded
millions of people dented fuel consumption.

Beijing has vowed to tame its galloping economy through a
relentless fight against inflation and feverish investment,
policies that could curb oil use amid worries of a global
economic slowdown.

In January, the world's second-largest oil consumer used
7.17 million barrels of oil, Reuters calculations based on
official data showed, off December's 6.4 percent increase and
flat with the 3.5 percent growth for 2007. (For a detailed
demand table, click [ID:nPEK266134])

The tepid start to 2008 could have been due to a fierce
winter since late January that crippled rail lines, halted
construction and frozen highways, as tens of millions of people
travelled home for the Lunar New Year family reunion.

But analysts are optimistic that China's oil use will pick
up in later months with increasing economic activity and a
booming transportation sector spurred by the summer Olympics,
offsetting the government's cooling measures.

While Beijing's resistence to raise fuel prices could stoke
another round of refinery production cuts similar to those late
last year, the government has the political will to order state
refiners to maximise output.

"The last thing the government wants is to see is taxi
drivers protest when people from the world visit the country,"
said Victor Shum at Purvin & Gertz.

"I expect demand to be strong on efforts to build
inventories ahead of the Olympics. And it will have a halo
effect even after the Games are over."

Data from the National Statistical Bureau released on
Thursday already showed a firm start in refinery throughput, up
5.7 percent in January and a 7.4 percent increase in the first
two months of the year. [ID:nPEK271325]

Paris-based International Energy Agency also projected
China's oil demand to quicken this year, at a pace of 5.6
percent versus last year's 4.6 precent.

BUMPER DIESEL IMPORTS

January's slow growth was likely caused by a sharp
scaleback in demand for fuel oil, which dropped nearly a
quarter over a year earlier as sky-high prices FO180-SIN
sidelined consumers unable to pass the cost onto state-capped
fuel and electricity prices.

The heavy oil is burned at small power plants or processed
at scores of independent refineries into gasoline and diesel,
prices of which are rigidly controlled by Beijing which now
faces near 12-year-high inflation.

The government's surprise decision to raise the fuel oil
consumption tax by tripling an original rate further dampened
the product's consumption and imports. [ID:nSP26712].

But state refiners boosted diesel imports to near-record
rates for the second month in a row following nearly two months
of widespread diesel rationing at petrol stations.

The imports, which increased more than six-fold over
January 2007, were made under the government's tentative tax
break from last December to March that helped pare heavy
losses, a policy likely to be in force again in the event of
another shortage.

State refiner Sinopec Corp (0386.HK) and PetroChina
(0857.HK) would focus on products' inventory build rather than
crude, analysts said, by slashing gasoline exports and
extending strong diesel imports as state oil firms did in
February and March.

This is despite the fact that more government emergency oil
tanks will be ready for use this year, analysts said, a message
echoed in comments a top energy official made earlier this week
which stressed that China's stockfill will be gradual and based
on global oil markets.

"It's difficult to see how one would want to build stocks
when crude is at $110 or heading even higher," said Shum at
Purvin & Gertz.
(Editing by Ben Tan)
(aizhu.chen@reuters.com; Reuters Messaging:
aizhu.chen.reuters.com@reuters.net; +8610 6627 1211)