Oil prices have hit a two-month low due to concerns over China's demand for crude. China's exports declined at a faster pace than expected in October, leading to a decline in demand from China and putting pressure on oil prices. In addition, weak demand outlook and high interest rates set by central banks have contributed to oil benchmarks dropping by about 7% in the past two days. US crude stocks have risen, indicating a decline in fuel demand. Despite voluntary output cuts by Saudi Arabia and Russia, oil prices remain below $80 per barrel. The International Monetary Fund suggests implementing structural reforms to boost productivity and support new engines of growth.
Analysts predict that crude oil prices may decline further due to a slowdown in China's demand and an increase in stockpiles in the US. China, the largest energy importer in the world, has been experiencing economic distress, leading to weak demand for crude oil. Additionally, recent data shows that crude stocks in the US have risen by 3.6 million barrels. Despite this, OPEC has raised its forecast for world oil demand growth in 2023 by 20,000 barrels per day.
China's crude oil imports from African countries like Angola have declined as it turns to the Gulf Cooperation Council, Russia, and other Asian countries. Angola, once China's No. 2 source of crude oil, has dropped to number eight on the ranking of oil suppliers to China. The decline in Chinese oil imports from Africa is due to factors such as geopolitical considerations, supply-side constraints, and domestic political problems. China has been fortifying its ties with Gulf countries, particularly the UAE, and increasing imports from Russia. The preference for Russian oil may be aimed at supporting the Russian economy amid international sanctions. Ageing oilfields and insufficient investment have caused a decline in crude oil production among African producers. The trading relationship between Africa and China remains unbalanced, with African countries exporting mainly raw materials to China. Middle Eastern oil exporters are competing more aggressively for market share in Asia, offering increased discounts to Asian consumers. Insufficient investment and declining production volumes in major African oil-producing countries have contributed to the drop in African oil flow to China. Chinese oil producers are involved in development projects in Africa, but much of the new output is likely to go to Europe and other markets.
China's increasing demand for electric vehicles and LNG-fueled trucks has caused oil prices to plunge. Efforts towards renewable energy and energy efficiency are reducing global oil consumption. China aims to achieve carbon neutrality by 2060. Economists predict stable U.S. inflation at around 3.1%, which could disrupt global monetary policies. Financial markets anticipate volatility and rising living costs. Companies in the U.S. are closely following China's progress in oil drilling and Venezuela's production woes. Amazon plans to set up small delivery hubs, and Google invests in India's market. Australia's Great Barrier Reef experiences another mass bleaching event. The UK announces a new plan for biodiversity. The world's first plastic-free supermarket aisle is rolled out in the Netherlands. Movie theater attendance rebounds despite streaming growth. Disney plans to construct a new theme park in China.
China's oil refining industry is expected to be flat or decline for the first time in years, according to market watchers. The prolonged property crisis and the increasing adoption of new-energy vehicles and gas-powered trucks are contributing to lower oil demand. China's refiners are extending maintenance schedules to account for the decrease in consumption. The International Energy Agency (IEA) also reduced its processing forecast, but still expects a gain. Of the analysts surveyed, three forecast a year-on-year decline in processing, two predicted flat refining, and one projected a gain. The decrease in Chinese demand poses a dilemma for OPEC+ as it seeks to raise output this year. Benchmark oil prices have been trending lower since April due to concerns about robust supply and soft demand, particularly from China.
Macquarie analysts caution that the market might not be swayed by a possible summer crude oil rally. They maintain a structurally bearish view of crude oil prices despite potential short-term upward pressure. Surplus concerns in the second half of 2024 and throughout 2025 could lead to a significant price correction. Negative drivers include concerns about OPEC+ compliance with production quotas, continued growth in non-OPEC oil production, potential slower ramp-up of new sources like the Dangote Refinery and Dos Bocas facilities, and China's decreasing sensitivity to economic growth. Macquarie suggests a cautious approach to the possibility of a summer oil rally, believing structural factors could lead to a price correction despite potential short-term upward pressure. [61c1639e]