China's oil slowdown has worldwide implications
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Sliding oil prices are putting a fresh spotlight on China's sway in global petro-markets — and a seismic change that may be unfolding.
Why it matters: It's by far the world's largest oil importer, so stalling demand growth is helping push down global prices.
- China's future oil thirst will also help dictate when total worldwide demand peaks.
State of play: China's recent downturn has been "even more acute than expected," International Energy Agency analysts write in a new post.
- It's the main reason global consumption growth in H1 2024 was the smallest since 2020, per IEA, which sees the softness continuing.
- With global supplies ample, prices have fallen to their lowest levels since late 2021, despite geopolitical risks in the Middle East and Ukraine.
"China sneezes, oil catches a massive cold," veteran oil analyst Paul Sankey tells CNBC.
The big picture: China's crude imports doubled between 2013 and 2023, reaching well over 11 million barrels per day.
- Now decades of surging growth appear over.
- "From a structural perspective, China now looks unlikely to be the behemoth for oil demand and perhaps even for other commodities that it once was," Energy Aspects Ltd. analysts said in a note, per Bloomberg.
The intrigue: China's weak economy explains some of the change. But IEA sees much more afoot.
- Electric cars' rapid rise is constraining road fuel demand, while more high-speed rail is limiting domestic air travel, IEA analysts note.
- And heavy trucks are increasingly using natural gas or batteries.
🔠What's next: China's path brings up the wider question of when global demand will stop growing — a debate with implications for markets and the climate.
- IEA analysts write that China's new era reinforces their view that global oil thirst will finally stop growing this decade.
- It's joining with "lackluster" growth or even declines in many nations, they say.
Friction point: Longtime oil analyst Arjun Murti is doubtful that China's nearing a permanent demand peak, noting road fuel is just a piece of its oil use.
- That said, his weekend post says China's "demographic maturity" and macro-economic picture indeed mean it will "likely stop being the dominant driver of oil demand in coming years."
- But Murti, a Goldman vet now with Veriten LLC, doesn't see global demand peaking for a long time (I wrote more about his take last year).
The bottom line: As we're fond of saying, China is the straw the stirs the drink in energy markets.
