Concerns about China’s oil demand are not going away

China’s economic woes and the property crisis have weighed on global oil consumption and growth expectations this year, limiting crude oil price gains.

The Chinese slowdown continued to weigh on market sentiment, even as oil prices posted a weekly gain last week, supported by the Fed’s 50 basis point rate cut, geopolitical tensions and low inventories at Cushing, the physical delivery point of the NYMEX WTI futures contract .

Brent Crude’s recent dip below $70 proved relatively short-lived, Ole Hansen, head of commodity strategy at Saxo Bank, wrote in a note on Friday.

“The market concluded that a level below 70, combined with hedge funds holding record low faith in higher crude oil and fuel prices, would require a recession to be warranted – a risk that helped dampen the sharp interest rate cut in USA this week,” Hansen said.

Despite renewed optimism following the Fed’s jumbo tapering, concerns about China are not going away and could be here to stay in the medium to long term.

China’s fuel consumption has disappointed so far this year amid weaker-than-expected economic growth and a housing crisis that continues to dampen demand for diesel.

Related: Shell abandons hydrogen projects in Norway due to lack of demand

The slowdown in China could extend beyond the short term, however. Analysts see road fuel demand peaking within a year – if it hasn’t already peaked – due to rising electric vehicle consumption and an increasing share of LNG as a truck fuel.

OPEC cut its oil demand growth forecast for 2024, citing concerns from China. In its Monthly Oil Market Report for September, OPEC expects global demand to grow by 2.03 million bpd in 2024, down from a previous estimate of 2.11 million bpd.

Chinese demand growth for 2024 was cut to 653,000 bpd from 700,000 bpd, and OPEC noted that “headwinds from the real estate sector and increasing penetration of LNG trucks and electric vehicles are likely to affect demand for diesel and gasoline in future”.

The International Energy Agency (IEA) also said in its monthly report this month that growth in global oil demand has slowed significantly and is set for just 900,000 bpd in 2024 due to a rapid slowdown in 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 just 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 slow growth was “a rapid slowdown in China”, where oil consumption fell for a fourth straight month on an annual basis in July by 280,000 bpd, the Paris-based agency said.

Referring to China, the agency estimates that the country’s oil demand is now set to expand by just 180,000 bpd this year, “as the overall economic slowdown and an accelerated displacement of oil in favor of alternative fuels weigh on consumption.”

“China’s oil demand is currently in firm contraction, falling 1.7%, or 280,000 b/d, year-on-year in July, a sharp contrast to the average pace of growth of 9.6% 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 economies in Asia, particularly India, will take the lead as drivers of global oil demand, the IEA noted.

Not only is the agency advocating a rapid pivot to renewables and electric vehicles predict a structural shift in China’s oil demand due to the adoption of alternative road fuels.

China’s oil demand growth has slowed 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 no one is moving, but simply because the fleet is slowly shifting to electric vehicles,” said Russell Hardy, CEO of the largest the world’s independent oil trader, Vitol Group, for Bloomberg. in an interview in early September.

By Tsvetana Paraskova for Oilprice.com

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