Oil demand in Asia’s key oil importers and fastest growing markets—China and India—has been growing at a slower pace this year than before, and analysts expect trade tensions, emerging-market currency weakness, and sanctions on Iran’s oil to further sour an already cautious investment sentiment and slow down economic and oil demand growth.
According to shipping data quoted by Reuters, the combined oil imports of China and India—the countries solely responsible for buying 12 percent of the world’s oil—were 500,000 bpd lower in July compared to the average combined imports of 12.4 million bpd in January to June this year.
China’s crude oil imports in July rose for the first time in three months, but were still at their third lowest monthly level so far this year due to the weakened crude demand from the small independent refiners, the so-called teapots, who grapple with higher taxes and waning margins.
The slowdown in import growth in India and China has been affecting the pace of demand growth in the world’s fastest-growing oil consuming region, Asia.
Despite higher purchases of Iranian oil before U.S. sanctions snap back, and despite scorching heat waves in Japan and South Korea who increased imports, annualized demand growth of the five biggest oil importers in Asia—China, India, South Korea, Japan, and Taiwan—has been around 2 percent so far in 2018, compared to growth of 3.5 percent in 2016, for example, according to shipping data compiled by Reuters.
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Over the past week, OPEC and the International Energy Agency (IEA) have separately warned that rising trade tensions could be a major downside risk to economic growth and oil demand growth.
The U.S.-China trade row has spillover effects in emerging economies across Asia as a strengthening dollar weakens their local currencies, reducing purchasing power and fuel demand. The impact of trade tensions on economic growth is still very small, and will take months to show up in figures if trade wars escalate, but the impact on investment sentiment is already evident, according to Jeff Brown, president at energy consultancy FGE.
“When you have all these factors like tariff disputes and weakening emerging market currencies, it’s going to hurt sentiment,” Brown told Reuters.
By Tsvetana Paraskova for Oilprice.com
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