Its influence on global energy demand is waning
The global crude picture is not rosy. Last Friday, Brent closed at US$82.63, while WTI crude dropped US$2.68 to US$80.13 per barrel, marking its lowest level since mid-June. Despite some support from U.S. inventory withdrawals, the market is under increasing pressure, with economic conditions in China playing a significant role.
For over a decade, China has been the single largest driver of the global economy, with its energy needs closely tied to its economic health. However, slower-than-expected growth in China is now affecting the global crude market.
Recent reports from China’s energy sector are concerning. According to data from the Chinese General Administration of Customs, weak refining margins and poor fuel demand led to an 11 percent drop in China’s total fuel oil imports in the first half of 2024. Imports totalled 11.95 million metric tons, or approximately 75.88 million barrels. Monthly imports significantly declined towards the end of the second quarter, with June imports down 31 percent from May and 45 percent from a year earlier.
At the same time, Chinese fuel oil exports in the first half of 2024 fell to 9.05 million tons, down 8.3 percent from the same period in 2023. China’s GDP growth also slowed to 4.7 percent in the second quarter, below the expected 5.1 percent. June retail sales were weaker than anticipated.
Weak fuel demand and declining refining margins led to a 3.7 percent decrease in refinery output in June compared to the previous year. This prompted independent refiners to reduce crude processing rates. Sinopec, China’s largest oil refining company, processed 126.69 million metric tons of crude oil, or 5.08 million barrels per day (bpd), in the first half of the year, a mere 0.1 percent year-on-year increase.
This contrasts with a 1.7 percent growth in the first quarter, highlighting a sharp slowdown in the second quarter due to higher crude prices and weak domestic demand. Sinopec reported a 2.5 percent year-on-year decline in total domestic refined fuel sales to 90.14 million tons, with retail sales falling 4.7 percent to 56.96 million tons.
Concerns about the Chinese economy were aggravated by the Chinese Communist Party’s Third Plenum, which offered few details on potential stimulus measures. Sentiment towards China was further hurt by reports of planned stricter U.S. trade restrictions on China’s technology sector, potentially leading to retaliatory measures from Beijing. Speculation over a possible Donald Trump presidency, with his protectionist policies, also negatively impacted sentiment.
As a result, China, the world’s biggest oil importer, saw a decline in crude arrivals in the first half of the year while boosting stockpile volumes. Clyde Russell of Reuters noted that China added 1.48 million bpd to either commercial or strategic oil stockpiles in June due to lower refinery throughput. For the first half of 2024, China added about 900,000 bpd to storage tanks, with this amount increasing in recent months.
The tepid imports and growing inventory volumes challenge the bullish demand forecasts for 2024 from the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA). The IEA highlighted that China’s declining influence on global demand is evident. Last year, China accounted for 70 percent of global demand growth, which is expected to drop to around 40 percent in 2024 and 2025.
The IEA’s recent monthly report also noted that weak Chinese consumption is slowing global oil demand growth, a concern for the energy sector. Rising concerns about Chinese demand are starting to weigh on global oil markets.
This is not good news for the energy sector.
Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.
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