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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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The Two Countries Dictating Oil Prices In 2020

It’s the end of the year and authorities of various caliber and standing are making oil price forecasts for next year. This wealth of information can be confusing because of its sheer quantity, but here’s a twist: it’s enough to focus on trends in just two countries to catch a glimpse of the immediate future of oil.

The two countries, of course, are China and India. They are among the world’s top oil consumers, together accounting for almost a fifth of global oil consumption, as Reuters’ John Kemp noted in a recent column that tackled the issue of oil price forecast complexity.

According to Kemp, it’s worth keeping tabs on the world’s ten largest consumers of the most traded commodity, since they account for over 50 percent of global consumption and demand growth, respectively. However, China and India have been consistently trumping the United States in importance when it comes to oil price trends in recent years.

The reason for this is that demand for oil has been growing a lot faster in both China and India. In China, oil demand has been growing at an average annual rate of 5.5 percent, according to BP data cited by Kemp. In India, it has been growing by some 5.1 percent since 2008. Meanwhile, U.S. oil demand has only been climbing by 0.5 percent over the last decade.

There is also another reason China and India are the countries to watch for those who want to know where oil prices are going at any particular point in time. Both countries are overwhelmingly reliant on imported oil. In China, the percentage of imported oil in its total consumption is almost 70 percent. In India, this percentage is even higher, at more than 80 percent. Related: Iran: We Won’t Agree To Any Production Cuts In The Future

China’s daily consumption of oil averaged 13.5 million bpd in 2018. India’s stood at 5.1 million bpd. No wonder then, that any economic news from China and, to a lesser extent, India, moves prices as soon as it is released.

It would be going too far to say that China and India are the only oil consumers that matter as far as price forecasts are concerned. The United States, despite its modest demand growth, is still the world’s largest oil consumer, guzzling around 20 million barrels of crude daily.

It is this size of consumption that makes the Energy Information Administration’s weekly petroleum status report so popular among oil traders, despite the fact it is based on estimates rather than on hard data—and the figures are often revised later, when the hard data from the oil companies comes in.

What’s more interesting, however, is that nobody seems to be paying attention to U.S. oil imports. As per the latest EIA report, the U.S. imported 6.9 million bpd in the first week of December. This is more than a quarter of domestic consumption and also more than India’s total consumption. Yet, U.S. oil import numbers are not a popular gauge for oil prices. The reason is most likely the demand growth trend, unlike developments in China and India. Related: OPEC+ Agrees To Deeper Output Cuts

Still, despite its somewhat declining importance for prices as a consumer, the U.S. has become a factor to reckon with on the oil supply side. In just a few years the world’s top consumer also became one of the world’s top producers. The shale revolution has made the U.S. a lot more self-sufficient in its energy needs and turned it into a direct challenger to the oil market dominance—especially in Asia—of partner Saudi Arabia.

So, in supply, one has to watch the U.S., OPEC, and Russia. In demand, however, it is enough to keep tabs on China and India. Anything that happens in those two economies immediately affects oil prices regardless of anything else that happens in the meantime. Just look at all the news coverage citing the U.S.-China trade war as the main factor for oil price depression. The depression persists despite OPEC+ agreeing to cut deeper. That should say enough about what moves oil markets.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on December 15 2019 said:
    China and India being the world’s largest and third largest importers of crude oil respectively have a lot of sway in the global oil market since they account for 21% of global oil demand.

    However, China is the world’s most important driver of the global oil market being the world’s largest economy based on purchasing power parity (PPP), the largest crude oil importer with imports almost hitting 11 mbd this year and also accounting for 85% of global oil demand growth. Furthermore, its petro-yuan is competing with the petrodollar for supremacy in the global oil trade.

    Both China’s and India’s dependence on oil imports is accelerating. By 2020 China’s oil imports will account for 75% of its consumption and is projected to rise to 82% by 2025 while India’s imports will account for 87% of its consumption and is projected to rise to 91% by 2025.

    And with the steep decline in US shale oil production, US oil imports will soon resume their upward trend. In 2019 the United States consumed almost 21 mbd based on demand growth from 2018 according to the authoritative 2019 OPEC Annual Statistical Bulletin and claims to have produced 12.3 mbd thus necessitating imports of 8.7 mbd. Therefore, the United States’ importance as an oil importer will grow in coming years.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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