Abstract: 

China has recently overtaken the U.S to become the world largest importer of crude oil. In light of this fact, we formally compare contributions of demand shocks from China, the U.S and the rest of the world. We find that China’s influence on the real price of oil has increased over the past two decades and surpassed that of the U.S. Despite this result, oil prices are more sensitive to demand shocks from the U.S than China. Finally, we document that demand shocks from China alone were too small to have caused the mid 2003-2008 price surge. Instead, oil specific demand shocks are found to be the major determinant of the real oil price during this period.