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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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Will China’s Oil Demand Disappoint This Year? 

  • Despite underwhelming economic data from China that have depressed oil market sentiment in recent weeks, no one has made any material downward revisions to their forecasts for China’s oil demand growth.
  • In light of the underwhelming Chinese recovery, the authorities could opt for additional fiscal stimulus and policy easing to put economic growth back on the targeted track.
  • ING: China is expected to account for over 1 million bpd of the estimated 1.9 million-bpd global oil demand growth this year.

China’s economic recovery is sputtering, prompting renewed concerns about crude oil and other commodities demand that could result in slower-than-expected global oil demand growth this year and weigh on oil prices. 

After the reopening from the Covid-related restrictions, China is expected to account for more than half of the world’s oil demand growth in 2023. However, last week’s Chinese factory output data came below expectations and triggered concerns that weaker manufacturing activity could weigh on Chinese imports for all kinds of commodities later this year. 

China’s purchasing managers’ index (PMI) dropped in May to a five-month low of 48.8, pointing to a sharper-than-expected contraction in factory activity. Manufacturing activity was below estimates for a second consecutive month.    

The weaker-than-expected Chinese economic data could start showing up in lower commodity exports in a few months as actual imports lag purchases, Reuters’ columnist Clyde Russell argues.  

The question for the market and for analysts is whether estimates about China’s oil demand growth this year have been too optimistic. 

Despite underwhelming economic data from China that have depressed oil market sentiment in recent weeks, no one has made any material downward revisions to their forecasts for China’s oil demand growth. Almost everyone expects China to rebound in the second half of this year, supporting oil prices, together with supply cuts from the OPEC+ producers.    Related: Saudi Arabia Raises Arab Light Prices For Asia

In light of the underwhelming Chinese recovery, the authorities could opt for additional fiscal stimulus and policy easing to put economic growth back on the targeted track, economists told CNBC last week. 

Further stimulus could spur more infrastructure activity, boosting demand for commodities. 

Analysts and major forecasters continue to believe that the true Chinese rebound will take place in the second half of the year, with higher jet fuel and gasoline demand thanks to increased mobility, strong demand for petrochemicals feedstock, and a recovery in infrastructure and construction activities.

Both OPEC and the International Energy Agency (IEA) were upbeat on Chinese demand in their latest monthly reports for May. 

OPEC sees China leading the expected 2.3 million bpd global oil demand growth, while the IEA noted that Chinese oil consumption in March set an all-time record-high at 16 million bpd. 

The Chinese recovery continues to exceed expectations, the IEA said in its Oil Market Report last week and raised its global oil demand growth forecast for 2023. 

The world’s oil demand is set to rise by 2.2 million bpd this year to a record 102 million bpd, said the IEA, which revised up its growth forecast by 200,000 bpd compared to the previous month’s assessment.  

China is expected to account for over 1 million bpd of the estimated 1.9 million-bpd global oil demand growth this year, Warren Patterson, Head of Commodities Strategy at ING, said in a note last week.  

“The fact that such a large share of demand growth is expected to come from just one country is a risk. And clearly, in recent months there have been concerns over the strength in China’s broader recovery,” Patterson wrote. 

“If Chinese oil demand disappoints, this could change the global balance significantly, with the market not as tight as expected.”

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But he added, “However, up until now, Chinese oil demand indicators have been looking fairly strong, with higher crude oil imports year-on-year and apparent record oil demand in recent months.” 

A recession in the United States, however, could also leave the oil market less tight than currently expected, ING says. The bank is already taking a cautious view on U.S. oil demand over the latter part of the year, and assumes in its balances that America’s oil demand will be flat year-on-year in 2023.

By Tsvetana Paraskova for Oilprice.com

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Leave a comment
  • Mike on June 05 2023 said:
    Anything for bearish narrative don't you think
  • Mamdouh Salameh on June 06 2023 said:
    How could a projected growth of 5.2%-6.5% by China in 2023 compared with 1.6% for the United States and 1.0% for the EU and record crude imports of almost 13.0 million barrels a day (mbd) in April disappoint global oil demand?

    Moreover, China will account for 1.15 million barrels a day (mbd) or 50% of OPEC+’s projected 2.3 mbd global demand growth in 2023.

    What will continue to disappoint is persistent fears of a global banking or financial crisis reminiscent of the 2008 subprime financial crisis triggered by a shaky US banking system.

    China’s economy isn’t only the driver of the vibrant and fast-growing ASEAN economies where Chinese direct investments have tripled from roughly 5% in 2016 to more than 15% in 2021 but is also the driver of the global economy.

    Shifting the blame for the decline in oil prices from fears of a global banking crisis to China is futile and self-delusional.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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