Oil faces a bleak future as China’s economy slows. The good news: ‘The market’ is hardly a market

SINGAPORE – As the world’s oil traders and analysts gathered at the annual Asia Pacific Petroleum Conference in Singapore last week, the oil slump and where it was headed were the talk of the town. which is at the forefront of everyone’s mind.

China, the main engine driving global oil demand, is booming. In the latest September report by the International Energy Agency, annual global oil demand increased by 800,000 barrels per day in the first half of 2024, slowing to a slower growth in the most from 2020.

The main reason for the decline is “China’s slow pace,” where consumption was used for the fourth consecutive month in July, year after year. China is the world’s largest consumer of oil as well as the second largest consumer, accounting for 15% of global oil consumption.

This strong demand, coupled with excess supply, pushed US prices to their lowest level in more than a year earlier this month. Iraq and Kazakhstan, key members of OPEC+, have produced above their monthly quotas under the oil group agreement.

Members of the alliance recently postponed plans to raise a planned increase of 180,000 barrels per day in October, as part of a program to restore 2.2 million barrels per day to the market in the following months.

Given this situation, low oil prices were the main theme at the main oil conference in Asia. The question was not whether oil will go down, but mainly about how much it will decrease in the coming years.

Goldman Sachs’ Co-Head of Global Commodities Research Daan Struyven estimated that crude prices could fall below $60s per barrel within the next two years., if China’s demand remains light. He did not prevent further declines.

“We estimate that Brent could fall to $50 per barrel moderately [U.S.] We are optimistic about the global economy,” Struyven said during the conference.

The US economy has remained resilient even as high interest rates aimed at curbing inflation have slowed growth and raised fears of a recession. That said, Americans believe the US is already in recession, according to the survey.

“Things are slowing down. It doesn’t mean an explosion, I don’t think so. It’s stopped? Maybe, and that’s bad enough for oil,” said Torbjörn Törnqvist, CEO of the trading house Gunvor.

Trading giant Trafigura has raised concerns about weak demand in China, and the associated global oil consumption.

“It’s hard to look beyond China when you think about the balance of supply and demand for next year,” Ben Luckock, global head of oil at Trafigura, told CNBC on the sidelines of the conference.

“I suspect we’ll probably be in the 60s soon,” he said. Global benchmark Brent is currently trading at $73.09 per barrel, while US West Texas Intermediate is at $70.57 per barrel.

Oil prices have fallen despite ongoing tensions in the Middle East, as well as the Russia-Ukraine war.

Luckock, however, warned against taking them too seriously. “It’s dangerous because there are so many events that can ruin your day.”

“I can’t put all your shifts on the table in a nutshell,” he added.

China’s slowdown has prompted some to look for other drivers of oil demand, with several eyeing India as a possible candidate. India is the third largest consumer of oil at about 5 million barrels of oil per day, 5% of the world’s oil consumption.

According to IEA estimates, India is poised to lead oil demand growth in 2024, surpassing China for the first time with an estimated increase of 200,000 barrels per day.

India is the world’s fastest growing economy, and is set to overtake Japan and Germany to become the world’s third largest economy by 2027.

Hong-Bing Chen, general manager of Chinese refiner Rongsheng Petrochemical said he sees more growth in India, as well as increased consumption of petroleum and natural gas from the South Asian nation.

Other experts were more cautious.

“Remember that India’s demand is a third of China’s demand,” said Vandana Hari, founder and CEO of Vanda Insights. “So will there be another China in terms of global oil demand growth in our lifetime or maybe after that? I don’t think so,” he said.

India’s growth rate will remain the same in the long term, until the mid-2040s, but it will not be as large and scaled as China’s, said Fereidun Fesharaki, chairman of the energy consultancy ‘ True Global Energy.