Falling Oil Price: the key factor is China's economic slowdown

 

China's economy and crude oil price - August 2021

The price of crude oil has been falling with no sign of the trend being reversed, although the rate of fall remains modest.

Throughout the past three weeks, analysts were wondering as to why the price of crude oil started falling despite the geopolitical risks that had the potential to disrupt the supply, especially in the Gulf of Oman.

This week, however, things started emerging that shed light on the unexpected development, in the end.

The main reason behind the falling crude oil price is the slower than expected growth in China that in turn affects the use of crude oil in the country; China is the world’s top crude oil importer and second only to the US, when it comes to oil consumption.

According to the National Bureau of Statistics of China, in July, the imported crude oil was 41.24 million tons, a year-on-year decrease of 19.6 percent; from January to July, imported crude oil was 301.83 million tons, a year-on-year decrease of 5.6 percent.

The fall in demand of crude oil reflects the slowing economic growth in China, despite the earlier estimations to the contrary by non-Chinese players in the realm of global economy.

Chinese state-aligned media has identified the following key reasons for the decline in growth:

  • ·       Multiple outbreaks of the Delta variant of the Coronavirus across the country
  • ·       Falling retail sales
  • ·       Falling industrial output
  • ·       Flattening overseas demand
  • ·       Rising crude oil prices
  • ·       Devastating floods in some regions
  • ·       Complicated global economic situation

 The Chinese have taken the development seriously, though. An executive meeting of the State Council was initiated in response to it and measures had been discussed to address the issues that led to the slower growth, although some of them were beyond China’s sphere of influence.

China, however, expects that the growth will pick up in the third quarter, which will evolve into a high-speed growth at the beginning of the next year, only to slow down throughout the year.

In this context, crude oil analysts have to watch the Chinese economic activities in the coming months as they have formed one of the key factors that determine the price of crude oil for the next few months. 

In addition, the economic situation in the rest of Asia brings no consolation to the gloomy crude oil markets either: although, the pandemic situation in India has improved, there are clusters of new outbreaks across the country; Japan, Indonesia, Malaysia, Vietnam, the Philippines and Thailand are going through difficult times as well, badly hit by the pandemic. 

All in all, the demand of crude oil has suffered and it will continue to be the case for some time, despite the accelerated vaccine drives across the globe.

 

 

 

 

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