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Page added on May 3, 2016
China’s Declining Oil Demand Not Hurting Oil Prices
China’s demand for oil is less than it used to be. A lot less, based on first quarter data. Don’t worry oil bulls, if Barclays is right this thing is going to $54 before the rally dies.
Crude oil markets remain supported by the persistence of large supply outages that have tightened the physical markets faster than anyone expected. Financial support is also coming through the build-up of long positions in the oil futures market, which is close to a record high.
China isn’t necessarily supportive. Even cautious oil bulls at Barclays admitted to that in a commodities research note sent to clients on Monday.
The clearest indication of softer consumption in China came last week. Chinese oil demand growth for March slowed noticeably in the first quarter. The rate of gasoline demand growth was cut in half, rising 5% compared to the 10% growth averaged last year.
Demand for diesel fuel which powers trucks and ships engaged in commercial shipments also declined. Hhe only positive is that the extreme weakness over the fourth quarter 2015 and the first two months of the year was not repeated in March, Barclays analysts led by Michael Cohen in New York noted today.
China is back in stimulus mode, something the market is always wishy-washy about. Sometimes they want stimulus in China, other times they complain that the stimulus goes to projects without revenue generation and are bad for credit. Yet, China is at it again anyway to keep the job market humming.
Government spending on fuel-consuming infrastructure projects has been the only support for diesel. Barclays expects China oil demand to grow to 220,000 barrels per day, which is nearly three times less than the 670,000 barrels per day in 2015.
Oil price rises remain a mystery. Prices are up nearly $15 year-to-date to $45.18 per barrel as of May 2.
Despite the unplanned outages, mainly in Nigeria, and the ongoing perception of a “tight market”, there are unsold barrels sitting in ports in the North Sea. Barclays estimated that there were seven million barrels of crude unsold in the North Sea port terminals, and roughly 10 million barrels of Nigeria’s May exports yet to ship out.
34 Comments on "China’s Declining Oil Demand Not Hurting Oil Prices"
Davy on Tue, 3rd May 2016 7:10 am
It has been clear from several articles I referenced here most from ZH that China’s latest demand surge in commodities of which oil and iron ore are the most noticeable was from the Chinese creating 1TRILLION in credit in the past serval months. This in itself is creating a new crisis in their bond market. The Chinese are re-leveraged many speculators and investors who are now going to again have to deleverage. It is just more of the same absurdity and insanity from the Chinese leadership that are playing a juggling game with their economy and by extension the global economy. The rest of the global central banks are at it too but China is the largest trading nation so its effects are pronounced. Those who don’t see this in the oil complex are missing a key variable with oil prices and trade structures. This situation will change yet again and when it does oil will be slammed again in a price, demand, and supply compression.
shortonoil on Tue, 3rd May 2016 7:28 am
“Financial support is also coming through the build-up of long positions in the oil futures market, which is close to a record high.”
These guys must have written this report from their base on Alpha Centauri. They seem to be about 3 1/2 years behind on the news?
http://www.zerohedge.com/news/2016-04-28/focused-wrong-end-oil
The latest polls looks a little more like this:
http://www.thehillsgroup.org/depletion2_022.htm
Of course Forbes hasn’t been working from planet Earth for a long time. Having your head up your universal crony oligarchical butt is likely to do that!
Harquebus on Tue, 3rd May 2016 8:58 am
There never was going to be an Asian century. Those that have bet their future prosperity on China’s infinite growth will lose their bet.
“Fake goods, fake economic growth, fake trade, fake cities, fake human rights, fake country. Real debt.”
http://www.zerohedge.com/news/2016-04-24/everythings-fake-about-china-except
“Then over the weekend, China’s farcical “data” entered the twilight zone, when 24 of 28 Chinese province-level regions reported GDP that was higher than the national figure of 6.7%.”
http://www.zerohedge.com/news/2016-04-24/chinas-brave-new-math-24-28-provinces-report-higher-gdp-national-average
“Is the recent resurgence in the commodities sector the start of a new bull market or simply the result of China’s latest debt surge, and therefore bound to turn back down?”
http://www.dailyreckoning.com.au/great-run-china/2016/04/26/
joe on Tue, 3rd May 2016 9:56 am
At some point soon Venezuela is going to collapse, that will take oil into territory to go back and pump some of the mothballed fracked wells, then once Venezuela is knocked out the oil game by American frackers, Canada will be next.
geopressure on Tue, 3rd May 2016 12:00 pm
Are we sure China’s demand is falling???
Seems to me that it is at record highs…
rockman on Tue, 3rd May 2016 12:16 pm
Geo – Careful now, bro…you don’t to upset the sheeple. After all how could CNBC, the International Energy Agency and the Chinese govt know better then the all-knowing all-powerful Forbes:
After all China’s oil demand will grow 4.3 percent this year to surpass 11 million barrels per day, compared to 4.8 percent growth last year, the country’s top energy group forecast on Tuesday. State-owned China National Petroleum Corporation (CNPC) sees the country’s oil demand rising to 566 million tonnes, or 11.32 million bpd in 2016, some 460,000 bpd higher than last year. The forecast, in an annual report released by CNPC’s research institute, also put the country’s net crude imports up 7.3 percent this year to 7.14 million bpd.
China, the world’s second-largest oil consumer, raised crude imports by nearly 9 percent last year, or an additional 540,000 bpd, largely to boost government and commercial reserves as oil companies took advantage of the nearly 70 percent fall in global benchmark prices from mid-2014 to end-2015. The CNPC demand forecast was higher than a recent report by the International Energy Agency (IEA) that put growth in China’s demand for oil products in 2016 at 3.1 percent, down from the 5.6 percent growth it estimated for last year.
PracticalMaina on Tue, 3rd May 2016 12:52 pm
So almost 1% of global production is getting stockpiled by China? Starting to put storage underground, a little harder for enemy’s to destroy? http://www.businessinsider.com/china-stockpiling-oil-tells-us-2-things-2016-5
ghung on Tue, 3rd May 2016 12:55 pm
From the article: “Chinese oil demand growth for March slowed noticeably in the first quarter. The rate of gasoline demand growth was cut in half, rising 5% compared to the 10% growth averaged last year.
Demand for diesel fuel which powers trucks and ships engaged in commercial shipments also declined.”
This isn’t the first time I’ve seen “demand growth” and “demand” equated in a Forbes article. The two are far from being the same thing. Slip-up or manipulating perception? Sneaky bastards, these financial writers.
geopressure on Tue, 3rd May 2016 1:00 pm
The nature of Chinese demand has been & is still in a process of transforming toward more & more gasoline, less & less diesel…
China, India, & US oil demand have all been at record highs for the last 4 months…
Davy on Tue, 3rd May 2016 1:11 pm
You can’t rely on what Forbes says or the Chinese so it is really just another smoke and mirror show like so many others. What we are seeing is a China losing control. That is very apparent. You can go from there with your speculations.
Davy on Tue, 3rd May 2016 1:24 pm
Four key risks ahead”
“We Expect A Sizeable Sell-Off” – One Hedge Fund’s Four Mega-Bearish Trades”
http://www.zerohedge.com/news/2016-05-03/we-expect-sizeable-sell-one-hedge-funds-four-mega-bearish-trades
“China Risk. China remains entangled in the messy rebalancing of its economy. While managing to sedate panic in equity and currency markets for now, China failed to address its structural issues. The size of NPLs is staggering at 30% of GDP. Short term rates are spiking in recognition of defaults happening on the ground at accelerating speed, and involving not just small enterprises, not just private enterprises, but large and state-owned enterprises too. In Q1, it only managed to keep GDP in shape by means of graciously expanding credit by a monumental 1trn$. Unsurprisingly, you cannot borrow 10% of GDP per quarter for long without a currency adjustment, whether desired or not. And generally, what is the point in selling reserves to defend the peg, thus doing monetary tightening, when you seek so desperately monetary expansion.”
“Oil Price Risk. The price of Oil moved from 27$ earlier this year to approx. 47$ today. The Doha meeting failed to freeze production, but the market could count on a declining production out of US frackers. While the bullish camp sees further reduction in production in the US, Venezuela, and an agreement on freezing production at the next OPEC/non OPEC meeting, we believe Oil will follow a volatile path around a declining trend-line, which will take it one day to sub-$10.”
“Strong US Dollar Risk. The weak Dollar is the major factor propelling the reflation sentiment in the market – EMs and Commodities greeted it with enthusiasm. However, it seems to us more a story of appreciating Yen and Eur out of the failed attempts of the Boj and the ECB to reflate their economies, as markets doubt their capacity at negative rates. It is not the typical weak Dollar out of increasing US current account deficit and increasing spending / imports, positive for the world and inflation. We expect the USD to have another leg up in the months ahead. A stronger Dollar alone has the potential to revive January-type fears over Oil, CNH, Emerging Markets, leading to a risk off of global assets, including the S&P, which is priced to perfection, with a P/E close to record highs.”
“European Banking Sector Risk. While the micro picture / relative performance of each bank is under the control of its management team (legacy issues and disposal of NPLs, overcapacity and layoffs/cost cutting, restructurings, industry consolidation, monetization of subsidies from Central Banks), macro structural headwinds for banks these days are too heavy a burden (negative sloped interest rate curves, deeply negative interest rates, deflationary economy, depressed GDP growth, over-regulation, Fintech), and will likely push valuations to new lows in the months/years ahead.”
Davy on Tue, 3rd May 2016 1:36 pm
“The $571 Billion Debt Wall That Points to More Defaults in China”
http://www.bloomberg.com/news/articles/2016-05-03/the-571-billion-debt-wall-that-points-to-more-defaults-in-china
“Chinese debt investors are turning bearish at just the wrong time for the nation’s corporate borrowers, which face a record 3.7 trillion yuan ($571 billion) of local bond maturities through year-end. With this year’s biggest note payments concentrated in some of the country’s most-cash strapped industries, China needs buoyant bond markets to help its companies refinance. Instead, yields in April rose at the fastest pace in more than a year and issuance tumbled 43 percent as borrowers canceled 143 billion yuan of planned debt sales.”
geopressure on Tue, 3rd May 2016 1:38 pm
China does not seem to be loosing control at all to me…
—
It looks to me like the S&P is headed back toward the 200 day-MA before the end of the week though…
GregT on Tue, 3rd May 2016 1:50 pm
What we are seeing is China buying up everything that isn’t nailed down, and the Western corporately controlled MSM constantly telling us that the Chinese economy is toast.
According to the World Bank and others, Chinese growth slowed in Q1 2016 to 6.9%, down 1/3 of 1% from 7.2% a year ago.
http://www.tradingeconomics.com/china/gdp-growth-annual
On the other hand, the 5 ton elephant in the room that the MSM is desperately trying to get the public to ignore:
“The US economy expanded an annualized 0.5 percent on quarter in the first three months of 2016, lower than a 1.4 percent expansion in the previous period, and below market expectations of 0.7 percent growth, according to the advanced
estimate released by the Bureau of Economic Analysis.”
The risk is in the US economy, and the drop in demand for Chinese manufactured consumer products has caused a minor slowdown in growth in China. The Chinese are moving towards different markets, both internally and externally.
Sissyfuss on Tue, 3rd May 2016 1:58 pm
Oil price is sinking in the market today. Short explained why this will take place and I believe him.
geopressure on Tue, 3rd May 2016 2:01 pm
HAHAHAHAHA….
geopressure on Tue, 3rd May 2016 2:08 pm
The oil price fell today because of a storm of negative press & fears that Obama is going to release a EIA numbers in the morning that show an inventory build…
Iraq & Turkey are falling apart… Iraq produces 4.5 Million BOPD… Turkey transports 1.6 Million BOPD through it’s pipelines… Oil prices going down today really defies logic…
But, Obama has absolute control over the Media & near absolute control over the CME…
GregT on Tue, 3rd May 2016 2:10 pm
“Short explained why this will take place and I believe him.”
Short’s ETP model makes perfect sense. While I’m sure that we will still see a great deal of volatility, in the long term I believe that his model will be correct.
GregT on Tue, 3rd May 2016 2:11 pm
Geo,
I would be more inclined to believe that the ‘media’, has absolute control over Obama.
Davy on Tue, 3rd May 2016 2:29 pm
“What we are seeing is China buying up everything that isn’t nailed down,”
That is a great example Greg thanks and that points to why they have such a huge debt problem!
shortonoil on Tue, 3rd May 2016 2:43 pm
“I would be more inclined to believe that the ‘media’, has absolute control over Obama.”
Obama is now a lame duck president whose pond is drying up. The EIA is more afraid of the ten million traders that will show up in Washington tomorrow if they don’t release the Weekly Summary on time than they are of some has been want-a-be semi golf pro.
geopressure on Tue, 3rd May 2016 2:54 pm
Are you trying to say that Obama has lost control over the EIA??? That’s ridiculous…
—
Obama sure doesn’t behave or operate like he is a lame duck…
kanon on Tue, 3rd May 2016 2:55 pm
Davy: “the Chinese creating 1TRILLION in credit”
IMHO, few people really think about things like that. The implication is a huge moral hazard, i.e. enormous effort and resources occupied in activities having little actual value. The ability of the modern financial systems to galvanize and direct social activities is something I find to be truly amazing. Everyone is so engrossed in chasing money they cannot see where they are going and cannot think of any way to change direction even if they do see.
shortonoil on Tue, 3rd May 2016 2:56 pm
“Oil price is sinking in the market today. Short explained why this will take place and I believe him.”
There seem to be a number of people who can’t get their head wrapped around the reality that when a barrel of oil is taken out of the market that the economy that barrel powered is taken out with it.
Maybe it has something to do with the New Math?
Plantagenet on Tue, 3rd May 2016 2:58 pm
A decrease in the rate of demand growth in China is not a decrease in demand.
Oil demand in China actually grew 5%—-thats actually a significant INCREASE in oil consumption.
Cheers!
rockman on Tue, 3rd May 2016 2:59 pm
And a reminder: the price of oil didn’t change today: the amount gamblers were will to pay for a certain oil futures contract changed. In time that gamble will prove either correct or incorrect subject to not what oil is selling for in the future but what the oil futures contracts are selling for when the current contracts reach maturity.
GregT on Tue, 3rd May 2016 4:48 pm
“That is a great example Greg thanks and that points to why they have such a huge debt problem!”
Hmmm, not sure about you Davy, but it would seem smart to me, that if one believes that the global economy is about to come crashing down, now would be a very good time to dump as much paper as possible in exchange for physical assets. Just sayin’.
GregT on Tue, 3rd May 2016 4:58 pm
“Obama sure doesn’t behave or operate like he is a lame duck”
Obama is a politician Geo, in other words, an actor.
geopressure on Tue, 3rd May 2016 5:01 pm
though I am not normally a proponent of physical assets, right now I think that buying oil production or gold will be a great trade…
Outcast_Searcher on Tue, 3rd May 2016 5:43 pm
What Plant said. Forbes calling increasing demand a big decrease in demand is idiotic.
Besides, it’s GLOBAL demand that matters over time. Global oil demand is continuing to grow, as expected.
The oil price, which Forbes is so confused about, reflects investors’ belief in what the net supply vs. demand will look like in coming months and years.
I’ve grown increasingly skeptical about the many lightweight financial rags like Forbes. This article is indicative of their basic lack of a clue.
Davy on Tue, 3rd May 2016 6:11 pm
Greg, I am just saying China is dumping paper much of that represent debt to buy physical assets many of which it turns into malinvestment and overcapacity or in other words bad debt. You made this a “China great US bad conversation”. I am calling it a common problem. There is a big difference with those two views.
Makati1 on Tue, 3rd May 2016 6:17 pm
Plant, but that Chinese “oil consumption” does not translate into an increase in their economy if it is put into storage tanks and not used. They have an oil ‘savings account’ to draw from in the future. As GregT said, they are trading paper for actual resources.
I don’t think some grasp the fact that the US generates over a trillion dollars more debt every year and have been for a decade or more. The Empire is living on borrowed time and money. Nothing more. China is still converting their paper assets for real stuff. a very intelligent thing to do today for all of us.
Plantagenet on Tue, 3rd May 2016 6:38 pm
@Makatai
It used to take a year for the US to generate a trillion dollars of debt. However Obama just created a trillion dollars of debt in only 6 months! (Nov 2015 to April 2016).
Is that amazing or what!
Makati1 on Tue, 3rd May 2016 6:56 pm
And the new Prez will top those numbers, wait and see. The house of debt is reaching it’s limits and will come crashing down. Meanwhile China, Russia, etc, will be sitting on a pile of actual resources and gold to pick up the pieces and move forward. It would be better to say that TPTB have increased the debt. “O” had little or nothing to do with it. He is just a front-man for the elite mafia. As will be Hilary or The Donald. Although I think Trump will be harder to push. Hilary is already deep in the PTB camp.