Higher oil prices may slow China industry: economist

CALGARY, Alberta (Reuters) - A 20 percent increase in China's fuel prices, introduced on Thursday, may allow the country's strapped refiners to boost output, but its booming industrial sector may slow as energy costs rise, an influential energy economist said.

Ed Morse, chief energy economist at Lehman Brothers, said oil demand growth from China's energy-intensive export industries, such as cement, aluminum and steel, may have run into trouble.

"The spectacular growth of energy-intensive goods is coming to a very rapid end," he said on Thursday at a conference sponsored by the Haskayne School of Business in Calgary, Alberta. "We are seeing surplus capacity emerging in energy-intensive industries that have been responsible for 60 percent of China's (oil) demand growth."

Morse, considered to be a price bear, said those key Chinese industries will slow because of the appreciation of the country's currency, U.S. and European protectionism, the slowing global economy and rising energy costs that are driving up the price of the goods.

Morse and a number of other analysts say that China's fuel-price hike may spur additional consumer demand as the country's unprofitable refining sector begins ramping up output to take advantage of the higher prices.

Demand from China has been a key driver in pushing oil prices up to records as it relies on energy imports to meet surging consumer and industrial demand. But Morse sees an average oil price of $93 a barrel next year, nearly $30 below current market prices, as the global economy, and China's Olympic boom, cools

"Post-Olympics, we will be seeing a radical shift in Chinese appetite for imports of crude oil and products, and we'll see that rebounding in the world economy."

There is, however, little consensus among economists that oil demand and prices will fall. David Greely, senior energy economist at Goldman Sachs, said supplies are likely to stay squeezed as emerging economies increase their demand for commodities while producing nations struggle to boost oil output despite record prices.

"Things are getting worse, not better," he said at the conference. "We've moved to much higher price levels and instead of seeing increases in supply ... it's been basically flat since 2004. ... We're not seeing any real supplies response from conventional crude oil resources."

As long as the global economy continues to grow, Greely said, demand for oil and prices will continue to rise to shake out excess demand.

Goldman Sachs thinks oil prices will trade at $149 a barrel by year-end or sooner.

(Editing by Frank McGurty)