While China is far from the sole driver of the crude price, it does play an outsized role. — Reuters
WHAT’S more important for crude oil markets? Forecasts of Chinese oil demand growth by leading agencies or the reality of ongoing weakness in imports?
Both the International Energy Agency (IEA) and the Organisation of the Petroleum Exporting Countries (Opec) talk about demand when they make forecasts as to the state of the oil sector in China, the world’s biggest crude importer.
This is a long-standing practice and one that is largely unchallenged by the wider market.
The problem is that there is a disconnect between the forecasts of demand growth amounting to several hundred thousand barrels per day (bpd) and the reality that China’s oil imports are actually falling.
In its latest monthly market report Opec said that China’s oil demand was 16.68 million bpd in 2024, a rise of 320,000 bpd from the 16.36 million bpd the exporter group said it was in 2023.
However, China’s oil imports were 11.04 million bpd in 2024, according to customs data, which was down 2.1%, or 210,000 bpd from 2023.
Obviously demand includes more than just crude imports, as it also counts imports of products, domestic output and any changes in inventories.
But the gap between the bullish demand number from Opec and the weakness in imports can’t be bridged by any of the other components of demand.
China’s imports of refined products were 1.05 million bpd in 2024, a figure calculated by using the customs figure of 48.23 million tonnes and converting at the BP Plc rate of eight barrels of product per ton.
Product imports were also down by 1.0% in 2024 from the previous year, according to the customs figures.
China’s domestic crude production was 4.24 million bpd, up 1.4%, or 60,000 bpd from the 4.18 million bpd in 2023.
China doesn’t disclose changes in commercial or strategic oil inventories, but an estimate of surplus crude can be made by subtracting what refiners processed from the total volume of crude available from imports and domestic output.
On this basis China added about 1.15 million bpd to stockpiles in 2024, up from 760,000 bpd in 2023.
Putting the available data together shows that China’s imports were weak in 2024, domestic production rose modestly and it’s likely that the country was adding to crude inventories.
But the more important conclusion is that looking at forecasts for China’s oil demand is likely to give a misleading picture of the actual situation.
If Opec’s gain of 320,000 bpd in China’s oil demand in 2024 is the right metric to use, it would follow that Chinese demand would be bullish for crude prices.
But crude prices struggled last year, with global benchmark Brent futures dropping from a year high of US$91.05 a barrel on April 15 to as low as US$68.68 by Sept 10, before ending 2024 at US$74.64.
While China is far from the sole driver of the crude price, it does play an outsized role given it accounts for about one-quarter of global seaborne imports, and it’s the seaborne price that drives the entire crude market.
The IEA was more modest than Opec in its China numbers, with its March monthly report pegging total oil product demand growth at 151,000 bpd in 2024, while forecasting a gain of 228,000 bpd in 2025.
Opec’s latest report forecasts that China’s oil demand will rise by 310,000 bpd in 2025, more optimistic than the IEA’s estimate.
But once again, the reality of weak crude imports is continuing, with customs data showing arrivals of 10.42 million bpd in the first two months of 2025, down 370,000 bpd, or 3.4%, from the 10.79 million bpd recorded for the same period in 2024.
It’s possible that lower crude prices and a recovery in economic momentum could see China’s crude imports recover over the rest of 2025.
But for now, the forecasts for oil demand growth in China being made by Opec and the IEA are already at odds with the declining imports. — Reuters
Clyde Russell is an Asia commodities and energy columnist at Reuters. The views expressed here are the writer’s own.
