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Page added on May 14, 2018

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The Most Underappreciated Story In The Oil Market

Consumption

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.

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.

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



5 Comments on "The Most Underappreciated Story In The Oil Market"

  1. twocats on Mon, 14th May 2018 8:21 pm 

    China is in the same if not worse boat than the US – they’ve gone virtually all-in on the fat-finger on the zero key of credit creation that to slow down in any meaningful way could be revolution #2. xi will only be president for life if his head doesn’t end up on a spike. the chinese are not fat and lazy like americans who dream of armed rebellion from their motorized wal-mart cart heading to the ammo aisle. but under what vision would the chinese revolt – that is the question.

  2. MASTERMIND on Mon, 14th May 2018 8:34 pm 

    Toys ‘R’ Us to sell Geoffrey the Giraffe, and sex-toys-r-us.com

    https://www.reuters.com/article/us-toys-r-us-bankruptcy-domains/toys-r-us-to-sell-geoffrey-the-giraffe-and-sex-toys-r-us-com-idUSKCN1IF32C

  3. Davy on Tue, 15th May 2018 5:59 am 

    China is in the position the US was a few years ago. Its now dependant on huge oil imports from across a vast global expanse. BTW, where is all the hype on the petroyuan these days. A nothingburger is what it is in relation to the hype. Longer term it will be more significant if the global economy holds but currently it reminds me of the bric bank bullshit.

  4. Norman Pagett on Tue, 15th May 2018 7:01 am 

    like all politicians, the chinese must satisfy the aspirations of their people to keep themselves in business

    so they convince them that oil is ”forever”, no matter how much that import and use

    but of course this is a lie, and pretty soon the chinese will feel this lie as their living standard aspiration vanishes in a cloud of exhaust fumes, choking them to death as it does so

    then the violent denial will kick in, just as it will in the usa and elsewhere, once the truth dawns—that the oilparty reall is over, and they are going to return to the technology of the farmcart and the sailing junk

    it won’t be pretty

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