China’s economic woes and property crisis have been weighing on global oil demand consumption and growth expectations this year, capping the gains in crude prices.
The Chinese slowdown continued to weigh on market sentiment even as oil prices booked a weekly gain last week, bolstered by the 50 bp Fed cut, geopolitical tensions, and low stocks at Cushing, the physical delivery point of the NYMEX WTI futures contract.
Brent Crude’s recent slump below $70 proved relatively short-lived, Ole Hansen, Head of Commodity Strategy at Saxo Bank, wrote in a Friday note.
“The market concluded that a sub-70 level combined with hedge funds holding a record weak belief in higher prices of crude and fuel products would require a recession to be justified—a risk this week’s bumper US rate cut helped reduce,” Hansen said.
Despite some renewed optimism in the wake of the Fed’s jumbo cut, concerns about China aren’t going away, and they may be here to stay for the medium to long term.
China’s fuel consumption has disappointed so far this year amid weaker-than-expected economic growth and the property crisis, which continues to dent diesel demand.
The slowdown in China, however, could extend beyond the short term. Analysts see road fuel demand peaking within a year – if not already peaked – due to the rise in electric vehicle intake and a growing share of LNG as fuel in trucking.
OPEC trimmed its oil demand growth forecast for 2024, citing concerns in China. In its Monthly Oil Market Report for September, OPEC expects global demand to grow by 2.03 million bpd in 2024, down from its previous estimate of 2.11 million bpd growth.
Chinese demand growth for 2024 was cut to 653,000 bpd from 700,000 bpd, and OPEC noted that “headwinds in the real estate sector and the increasing penetration of LNG trucks and electric vehicles are likely to weigh on diesel and gasoline demand going forward.”
The International Energy Agency (IEA) also said in its monthly report this month that global oil demand growth has markedly decelerated and is set for just 900,000 bpd in 2024 due to rapidly slowing Chinese consumption. The agency cut its growth estimate by 70,000 bpd from last month’s assessment.
Global oil demand growth in the first half of 2024 was only 800,000 bpd year-on-year, the slowest pace of growth since 2020, the IEA said in its closely-watched Oil Market Report.
The main driver of the sluggish growth has been “a rapidly slowing China,” where oil consumption contracted on an annual basis for a fourth straight month in July by 280,000 bpd, the Paris-based agency said.
Referring to China, the agency forecasts the country’s oil demand is now set to expand by only 180,000 bpd this year, “as the broad-based economic slowdown and an accelerating substitution away from oil in favour of alternative fuels weigh on consumption.”
“Chinese oil demand is currently firmly in contraction, falling by 1.7%, or 280 000 b/d, year?on?year in July, a marked contrast with the 9.6% average pace of growth in 2023. Accordingly, we expect annual growth of only 1.1%, or 180 000 b/d, in 2024,” the agency said.
Going forward, other emerging Asian economies, most notably India, will take the lead as global oil demand drivers, the IEA noted.
It’s not only the agency advocating for a swift pivot toward renewables and EVs that’s predicting a structural shift in Chinese oil demand due to the uptake of alternative road fuels.
China’s oil demand growth has been slowing down due to weaker economic performance and a shift to electric vehicles and LNG-fueled trucks, oil industry executives said at the APPEC conference in Singapore earlier this month.
“Gasoline is likely to peak this year or next year in China — not because nobody’s moving, but simply because the fleet is slowly changing towards electric vehicles,” Russell Hardy, the CEO of the world’s largest independent oil trader, Vitol Group, told Bloomberg in an interview earlier in September.
By Tsvetana Paraskova for Oilprice.com