China has been the sole driver of the global crude oil markets for years. Its growing crude thirst has, time and again, pulled the markets up.
Last year, while crude markets were touching the ebb, even going into negative territory, “Chinese buyers dragged oil prices out of the doldrums single-handedly as they stocked up on the cheap commodity to fill reserves,” writes Irina Slav in a piece in OilPrice.com.
This isn’t new. When an economic depression hit the world in 2008-2009, it was the Chinese dragon that pulled the crude oil markets out of the pit. With Chinese consumption growing rapidly and American domestic production going up – courtesy of the shale oil revolution – China emerged as the world’s largest crude importer.
So oil-producing nations began to look closely at Chinese crude oil trends and how they would determine the global market direction.
Where does China stand today when it comes to crude oil consumption?
Some indicators are beginning to emerge that adversely impacting global crude oil markets. As Slav writes, the global markets’ overdependence on the Chinese dragon is beginning to backfire.
The resurgence of COVID-19, as a result of the Delta variant, has forced China to impose travel restrictions in major cities, including Beijing. The rise in cases in China is affecting movement and, consequently, fuel consumption.
Oil prices were also negatively impacted early Friday morning, raising concerns about global trade, when news emerged that China had closed the Meishan terminal of the world’s third busiest port, Ningbo-Zhoushan. China has also suspended flights and long-haul bus trips from cities with increasing COVID cases.
The Chinese are also cracking down on crude imports for their independent refinery industry, which accounts for a hefty chunk of their total imports. With oil prices much higher this year than last, and with excess fuel stocks, China’s import appetite seems to have tempered for the time being.
According to data released on Aug. 7, Chinese crude oil imports in July stood at 9.71 million barrels per day (bpd) from 9.76 million bpd in June. This was slightly above May’s 9.65 million bpd and below April’s 9.82 million bpd. Crude imports to China for the first seven months of this year are reportedly 5.6 per cent below the same period in 2020.
July was the fourth consecutive month that Chinese crude oil imports were below 10 million bpd, a far cry from most of 2020, when imports surged from May to November. In June 2020, Chinese imports touched an all-time high of 12.94 million bpd. The scenario today is different. Apart from a brief spike in March, 2021 has been a story of declining crude purchases by China.
The Chinese crude outlook appears dull. The country’s demand is expected to be one million bpd lower than previously predicted over the next two months, investment bank Goldman Sachs said in a recent report. Goldman Sachs analysts now see total global crude oil demand standing at 97.8 million bpd over the next two months, compared to its July estimate of 98.4 million bpd.
“There is still plenty of uncertainty about how the COVID-19 situation in China will evolve and what this means for oil demand and prices,” Reuters reported, quoting ING Economics.
The Chinese demand pattern is key to the health of the global crude oil markets. If Chinese demand slows, there’s no real alternative to pull the markets out.
For some time, the world has looked to India as a balancing alternative. But India is a much smaller importer than China, writes Slav. Last year, Indian crude imports were about four million bpd, compared to Chinese imports of 11 million bpd.
So global crude oil markets are dependent almost entirely on China.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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