Weak Chinese Demand and Supply Glut Weigh on Crude Prices

Key Highlights

• Crude Oil Prices: Brent and WTI futures rose slightly due to tensions between Russia and Ukraine. MCX crude futures also edged up marginally.
• Supply Outlook: IEA predicts a supply glut exceeding 1 million barrels/day in 2025, highlighting weak demand trends.
• Geopolitical Factors: Hostilities in the Middle East and US support for Ukraine against Russian targets contribute to supply concerns.
• Structural Shifts: Electrification efforts and structural changes in China’s economy are expected to slow crude oil demand growth globally.

Petroleum Price: Crude Oil Prices on the Rise Amid Geopolitical Tensions

• Crude oil futures traded higher on Monday morning due to increased tensions between Russia and Ukraine.
• January Brent oil futures were at $71.39, up by 0.49 percent, while January crude oil futures on WTI (West Texas Intermediate) were at $67.24, up by 0.48 percent.
• November crude oil futures were trading at ₹5,676 on the Multi Commodity Exchange (MCX) during the initial hour of trading on Monday, compared to the previous close of ₹5,669, up by 0.12 percent.
• December futures were trading at ₹5,700, compared to the previous close of ₹5,679, up by 0.37 percent.

Petroleum Demand and Supply: Declining Demand from China Weighs on Global Oil Prices

• Recent reports of a decline in China’s refinery throughput limited further increases in the price of crude oil. According to the National Bureau of Statistics (NBS) of China, refiners in the country processed approximately 14.02 million barrels per day of crude oil in October 2024, compared to 15.05 million barrels per day in October 2023. In September 2024, China processed 14.3 million barrels per day of crude oil.
• China, being a major consumer of crude oil in the global market, significantly influences its prices. A decline in demand for crude oil in the country impacts global crude prices.
• Oil has fluctuated between gains and losses since mid-October, with hostilities in the Middle East occasionally raising fears of an escalation and potential supply disruptions. Weak Chinese consumption has impacted sales of Angolan crude for December. Forecasters, including the International Energy Agency (IEA), predict a sizeable supply glut next year.
• “Market participants continue to fret over the prospects for higher supplies from the US and OPEC+ and the outlook for China’s economy,” said Jun Rong Yeap, a market strategist with IG Asia Pte. “There’s not much of a bullish catalyst for oil prices to ride on.”

Petroleum News: Geopolitical Risks Add Volatility to Oil Markets

• President Joe Biden’s administration has permitted Ukraine to use US-made weapons to attack main Russian targets, according to authorities familiar with the decision.
• Weak data from China and the IEA's forecast that global oil supply will exceed demand by more than 1 million barrels per day in 2025, despite OPEC+ cuts, caused Brent and WTI to drop by more than 3 percent last week.
• Government data released on Friday indicated that China’s refinery throughput decreased by 4.6 percent in October compared to the same month in 2023, as the country’s factory output growth slowed last month.
• China’s crude oil surplus almost halved in October, as refinery runs and imports declined. Excess crude decreased from 930,000 barrels per day (bpd) in September to approximately 550,000 bpd in October.
• However, 2024 has been an atypical year for China’s oil industry. Under normal conditions, a decrease in crude entering inventories would indicate increasing demand.
• The reduction in spare crude was due to oil imports decreasing more than refinery throughput last month. This can be estimated by subtracting the amount of processed crude from the total crude available through imports and domestic production. However, China, the world’s largest importer of crude, does not disclose the volumes of oil flowing into or out of its strategic and commercial stockpiles.

Expert Opinion: Structural Shifts Drive Long-term Weakening in Oil Demand

• It is anticipated that future crude oil demand growth will significantly trail the historical annual growth rate seen before the COVID-19 pandemic. Between 2001 and 2019, China’s crude oil demand increased by 9.3 million barrels per day, accounting for 40 percent of the global crude oil demand increase of 23.8 million barrels per day.
• Consequently, China has been a key driver of global demand growth. However, China’s demand is now being impacted by structural factors rather than transient reasons. As a result, global crude oil demand may be entering a period of weaker growth, especially as electrification efforts intensify.