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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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The Most Underappreciated Story In The Oil Market

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The world is currently watching the growing tensions in the Middle East, and oil market analysts are guesstimating just how much Iranian oil supply the renewed U.S. sanctions could stifle.

Yet, the biggest story in oil markets this year may well take place far from the much-publicized tensions in the Middle East – namely China’s ever-growing oil demand.

The key oil demand growth center—China—has just beaten its own imports and refinery runs records, as refined oil product exports jump and domestic crude oil production hits seven-year-lows.

While all eyes are riveted on Iran and the Middle East, the pace of Chinese oil demand growth could be the most underappreciated story in oil markets right now, Bloomberg Opinion columnist David Fickling writes.

China’s oil demand growth has so far this year exceeded expectations, and Goldman Sachs, for example, says that growth could be even “higher than currently estimated”. According to Goldman, global oil demand growth in the first quarter of 2018 is likely to have seen the strongest yearly growth since the fourth quarter of 2010.

Current estimates by investment banks that see lowered Iranian and Venezuelan supply pushing up oil prices also assume that the global—and Chinese in particular—demand growth will continue to be strong.

So far this year, China has lived up to these expectations. Related: Iran Sanctions Threaten The Petrodollar

In 2017, China surpassed the United States to become the world’s top crude oil importer as its domestic production declined while it kept the title of world’s largest oil consumer for the ninth consecutive year, and while it expanded refining capacity, and reduced restrictions on oil imports and refined oil product exports.

The strong crude import pace continued this year, and in March Chinese crude oil imports hit their second-highest level on record at that time, while refined fuel exports also jumped to an all-time high, up by 43 percent compared to March 2017. China’s crude oil imports in the first quarter increased by 7 percent on the year to around 9.09 million bpd—a rise of almost 595,000 bpd on average compared to Q1 2017, according to Reuters calculations.

Refinery runs in March also jumped to a record as import quotas for the small independent refiners—the so-called ‘teapots’—were increased and refinery margins stayed healthy.

Chinese refineries processed 12.13 million bpd in March, beating the previous record of 12.03 million bpd from November 2017. Refinery runs in April and May are expected to be lower than the March record due to the peak maintenance season.

At the same time, China’s domestic crude oil production has been languishing near June 2011 lows in the first quarter this year, prompting higher imports to meet growing demand. Crude oil production in March was around 3.76 million bpd, flat compared with the average levels in January and February.

In April, Chinese crude oil imports set a new record—at 9.6 million bpd they beat the previous daily record of 9.57 million bpd from January this year. Steady refining margins and backlog cargoes to some independent refiners contributed to the record import volumes. Refined oil product exports soared 46 percent on the year in April, but eased from the all-time high in March. Related: Higher Oil Prices Look Likely

China is crucial to global oil demand growth, and if it keeps its current growth pace, it would support the strong demand growth that analysts expect.

On the supply side, Iran’s impact on the global oil market has yet to be quantified or seen. The coming U.S. sanctions pushed up oil prices last week after President Donald Trump withdrew the United States from the nuclear deal.


Iran’s oil buyers continue to buy its crude, assessing the implications of the sanctions during the 180-day wind-down period. While European buyers flag concerns over the financing issues of trade with Iran as a potential stop to buying Iranian crude, China is reassuring Tehran that it will continue to import its oil.

As a supply loss in collapsing Venezuela and a potential decline in Iranian oil exports push oil prices up, the pace of demand growth in China could drive global demand growth higher. If demand growth continues to be strong—as currently expected—an already tight oil market could become even tighter amid geopolitical concerns, driving oil prices further up.

By Tsvetana Paraskova for Oilprice.com

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  • Mamdouh G Salameh on May 15 2018 said:
    Deng Xiaoping was the inspirational architect of contemporary China, and is thus among the towering figures of the twentieth century. His mantras about the peaceful rise of China are:

    "China should “observe developments soberly, maintain our position, meet challenges calmly, hide our capabilities and bide our time, remain free of ambition, never claim leadership. China should not attempt to be a hegemon, it should never practice power politics and it should never pose a threat to its neighbours or to world peace”.

    While oil prices’ surge to $78 a barrel is underpinned overwhelmingly by the robustness of the global oil market fundamentals, a virtual re-balancing in the oil market and, to a lesser extent, geopolitical concerns, it is safe to say that China’s thirst for oil is the one factor underpinning the market fundamentals.

    Since it became a net oil importer in 1993, China has greatly increased its oil imports from 20,000 barrels a day (b/d) then to 9.6 million barres a day (mbd) in April this year compared with 8.40 mbd in 2017, a 14% rise. China’s oil imports are projected to range from 10-11 mbd this year accounting for 74% of China’s domestic demand.

    And while China’s fast-rising demand for oil imports is buoyed by strong economic performance, the fact that China’s domestic oil production has declined from 4.25 mbd in 2014 to 3.76 mbd in March this year gave another stimulus to China’s oil imports.
    Another factor is that China is becoming a leading exporter of refined products. Chinese refineries processed 12.13 mbd in March this year, beating the previous record of 12.03 mbd in November 2017.

    And while China’s ever-growing oil demand is a big story in the global oil market, the biggest story unfolding is the petro-yuan which could cause a seismic shift in the global oil market as it tries to challenge the petrodollar for dominance in a global oil market valued at $14 trillion. The petro-yuan will gain more recognition as the currency to undermine US sanctions against Iran, Venezuela and Russia. This is the real story in the global oil market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Frank on May 15 2018 said:
    So it's import demand growth, not overall demand growth. The great promise of Chinese fossil demand growth is dead. They'll likely peak their oil demand before anyone outside of Europe. 2021/22ish.

    China is installing renewables at an unfathomable pace, has essentially stopped domestic oil production, and is going to ban interal combustion within 10 years. I guess there are many ways you could interpret these trends.
  • Kr55 on May 15 2018 said:
    China, India and Africa. All of these countries will be driving oil demand gains for a long long time.
  • analyst on May 15 2018 said:
    If China has the largest demand for oil and has stated that it intends to continue to purchase Iranian oil, why would anyone think Iranian oil output would decrease? If US sanctions go into effect, China will probably be able to buy Iranian oil at a discount and Iran will likely produce more to make up for the loss of revenue. The overall world oil supply will actually increase.
  • Jorge on May 15 2018 said:
    another underappreciated story this year is oil futures denominated in yuan
  • Inquisitive on May 17 2018 said:
    Did domestic production decline in the US in 2017? I thought it (crude) was up by some half a million bbls average per day?

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