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Page added on September 11, 2015
Could China slowdown threaten the Middle East’s oil market?
“When China wakes, she will shake the world,” as Napoleon said. Now the country, having dominated the commodities market over the past decade, is again shaking it – but this time the tremors of economic worries are bringing prices crashing down.
On 11th August, the yuan was devalued by nearly 2 percent. On 24th August, the Shanghai stock exchange slumped by 8.5 percent, and markets around the world followed it down.
Oil, priced above $100 per barrel in June 2014, has tumbled since then, before recovering slightly. But on the Chinese news, the Brent crude benchmark dropped to $42 per barrel, the lowest since the financial crisis.
This oil price drop was a combination of realistic fears and panic. At a time of global oversupply, further weakness in demand sends more sellers in a crowded market in search of buyers.
Oil suppliers from Venezuela and Nigeria to Central Asia and the Gulf, gas exporters such as Qatar, Turkmenistan and Russia, coal miners including Australia and Indonesia, and metals producers in Brazil, Zambia and Chile, are all hit by ebbing commodities demand.
Bearish signals
Interpreting Chinese oil demand is difficult. The country does not release data on its strategic stocks, and refiners often stockpile crude when prices fall, both of which create apparent demand. China also exports large volumes of refined products to its neighbourhood.
Estimated demand was down in July to 10.12 million barrels per day (bpd), from 10.56 million bpd in June. This is still up year-on-year by 400 000 bpd, quite comparable to annual growth from 2011 onwards. But, in a negative sign for future demand, car sales have fallen monthly since April. Less activity in coal mining and steel-making means lower demand for trucking fuel: diesel demand has been flat this year.
In the longer term, the bearish signals for commodities are clearer. The Middle Kingdom’s economic expansion drove oil prices from below $10 per barrel in 1998 to a record $147 per barrel in 2008, as it went from a net oil exporter as late as 1992 to the world’s biggest importer in 2014.
In response to 2008’s economic crisis, Beijing embarked on a stimulus plan which saw the country use more cement from 2011 to 2013 than the US did during the entire twentieth century.
Ravenous appetite
This ravenous appetite was clearly unsustainable. Since the Great Recession, the country’s growth has been only half as energy-intensive as it was before.
It was widely predicted, firstly that Chinese growth would slow down from more than 10 percent annually to 7 percent or so, and secondly that this growth would be less resource-intensive and more focussed on services and domestic consumption. Its workforce has now started shrinking as the population ages, and environmental concerns require cleaner, more efficient growth.
In April, Sinopec, China’s biggest refining company, suggested that national oil demand would peak earlier than most people expected. Its well-respected chairman, Fu Chengyu, saw diesel consumption topping out as soon as 2017, and gasoline use reaching its maximum around 2025. That was sharply at variance with International Energy Agency forecasts that Chinese oil demand would keep increasing until at least 2040.
Tricky conundrum
A Chinese slowdown now presents OPEC with a tricky conundrum. The Gulf countries, led by Saudi Arabia, have since last summer’s oil price collapse stumbled into the wisest strategy: to expand production to drive out high-cost producers, revive demand, and, perhaps, to create room for the further growth of Iraq and expected return of Iranian exports.
Oil majors have already slashed investment, shale oil growth will slow to a trickle, and mature fields elsewhere will decline. This will probably lead oil prices to recover somewhat later this year and in 2016.
But, if Chinese and other Asian demand is weak, the hoped-for market space may still not materialise. Unlike 2008-9, when global demand had collapsed and OPEC agreed on collective production curbs to defend prices, cuts now would leave Saudi Arabia surrendering market share to U.S. shale oil producers, Russia or political rival Iran.
China’s current economic concerns may be overblown. But as it slows down, commodity producers, the major oil exporters foremost, need to prepare for a long period of weak demand and lower prices. China has shaken the world, but, as the saying goes, the bigger they are, the harder they fall.
30 Comments on "Could China slowdown threaten the Middle East’s oil market?"
Makati1 on Fri, 11th Sep 2015 8:10 am
“China’s current economic concerns may be overblown.”
Definitely. It’s all according to plan. Their plan, not the Western press’ plan. China is just being blamed for the overall contraction caused by debt in the Western countries and the high cost of the Wars of Chaos also caused by one country in particular.
onlooker on Fri, 11th Sep 2015 8:18 am
Yes true Makati, but the slowing down of China economy in itself will cause world-wide slowdown which in turn cuts demand for oil to this article is accurate. I am not sure anybody though could do anything about all this as everyone is over leveraged. The world-wide Debt System is reaping what it sowed. Besides soon enough actual resource shortages will unveil a new more drastic recession/depression.
Davy on Fri, 11th Sep 2015 8:53 am
Numbers don’t lie agendas do. The China project was a world project. It was a failed project of the largest bubble man has ever attempted. We will now all pay the price for the hubris of that final blow out of globalism.
Rodster on Fri, 11th Sep 2015 9:11 am
China’s economic concerns are NOT overblown. In fact it’s what I thought would happen to them. All the gold they have won’t save them either. The world has been in a DEPRESSION since 2008.
Meanwhile the Chinese decided they would just print their way to prosperity. Where have I seen that before?
They created ghost cities, factories, built bridges and roads to nowhere. They expanded their debt bubbles as well as creating a massive shadow banking system while fudging their GDP numbers.
They were never growing at the rate they claim. It was all based on lies because their economic, business and money systems are based on the West.
onlooker on Fri, 11th Sep 2015 9:22 am
Magnificently stated Davy. China and India should never have happened, they, the world should have said enough is enough but NO like an addict we sought still more growth. Well like cancer growth is consuming it’s host.
BobInget on Fri, 11th Sep 2015 9:27 am
Communist China, ostensibly has a ‘command’ economy.
So called democratic nations have ‘demand’ economies.
http://www.bloomberg.com/news/articles/2015-09-11/oil-supply-outside-opec-to-fall-most-since-1992-iea-forecasts
IEA admits shortages in as few as three months. Nevertheless;
“Production may not be falling fast enough to clear the global surplus and prices could drop as low as $20, according to Goldman Sachs Group Inc.”
Goldman’s instructions seem to read,
‘Painful shortages are needed prior to crude
miners, investors are permitted fair profit’.
Promises of $20 crude make mild, spotty shortages into WORLD-WIDE drought.
That article above proves GS is ‘talking their book’ at almost everyone’s expense.
Don’t expect Saudi Arabia or Gulf Royals to be there when ‘we’ need them. All King’s days are numbered. Saudi exports either fall or be pushed.
China is trying to manage a changeover to
a consumer based economy. If you don’t think that’s difficult, just imagine the US swapping from consumer based to low wage manufacturing..
I see the MiddleEast falling into genuine chaos as highly skilled classes vacate Iraq and Syria forever.
Germany, is having trouble filling schools,
offices, blue collar positions from welders to
mechanics to elder caregivers. No longer.
Jordan, Turkey, Lebanon will soon have more
refugees then politically viable.
It’s all about fear of ISIL.
When, in point of fact Saudi Arabia has beheaded more people this year then ISIL.
apneaman on Fri, 11th Sep 2015 10:53 am
If China and Russia have such awesome economies compared to the west, then how come the refugees are not headed there? You would think they would be knocking each other over to get to the countries with all this supposed growth and jobs. Also, neither Russia or China have bombed them either, yet they are headed to some of the countries that have (NATO) or have, at the very least, quietly condoned it.
GregT on Fri, 11th Sep 2015 11:21 am
What’s really going on in Syria:
https://www.youtube.com/watch?v=pHFnvFbThDE
Plantagenet on Fri, 11th Sep 2015 6:00 pm
@onlooker
How exactly do you propose to tell India and China not to grow, or as you put it… “not to happen”?
@apeman
The Syrian refugees aren’t headed to Russia or China because they will get more money and better benefits if they go to Germany.
Cheers!
Apneaman on Fri, 11th Sep 2015 6:10 pm
Thanks planty. I guess you were sick at home with the flu that day when they covered rhetorical questions back in grammar school.
onlooker on Fri, 11th Sep 2015 6:30 pm
Simple you make them outcasts of the world economy Plant. We did that to Cuba did we not. 50 years ago China and India were backwards economies mostly agrarian. Don’t think for a moment the capitalist mind did not covet the resources of China, the cheap labor of China, the markets of China and India. I am not saying Chinese and Indians did not wish that for themselves to improve their economies. I am saying they were helped a whole lot and I guarantee they were not thinking of the poor Chinese and Indians in the process
Makati1 on Fri, 11th Sep 2015 7:13 pm
Onlooker, maybe the US should never have happened. It still consumes more resources than India and China combined. The end of the US would release 25% of the world’s resources to the rest of the world. So, the sooner the better.
Makati1 on Fri, 11th Sep 2015 7:16 pm
BobInget, be careful! You are over loading the sheeple with too many facts. You might make one or two of them wake up and start to think for themselves … lol.
Davy on Fri, 11th Sep 2015 7:22 pm
(US) It still consumes more resources than India and China combined. OOh that is a boo boo wrong answer.
Rodster on Fri, 11th Sep 2015 9:15 pm
“Visualizing China’s Mind-Boggling Consumption Of The World’s Raw Materials”
http://www.zerohedge.com/news/2015-09-11/visualizing-chinas-mind-boggling-consumption-worlds-raw-materials
Davy on Sat, 12th Sep 2015 7:54 am
Rodster, great link. How can Asiaphiles brag about Asia not being the problem when you look at that graph? I am not pointing fingers at Asia. The west is just as bad. I am pointing fingers at the extremists on this site that are pushing their agenda that Asia is good and the west bad. This extremist agenda is a lie. They know this but it is a good propaganda tool and that is why they employ it.
shortonoil on Sat, 12th Sep 2015 3:45 pm
“Production may not be falling fast enough to clear the global surplus and prices could drop as low as $20, according to Goldman Sachs Group Inc.”
The average well in the world is about 4000 feet, and the water cut is 47%. $20 wouldn’t even cover the lifting cost of the average well. Once the pumping stops, and the pressure falls in these wells the oil remaining in them is trapped, and can not ever be retrieved. Goldman should stick to what they know best, fleecing little old ladies, and orphans!
Boat on Sat, 12th Sep 2015 3:56 pm
apneaman/Mak
If China and Russia have such awesome economies compared to the west, then how come the refugees are not headed there? You would think they would be knocking each other over to get to the countries with all this supposed growth and jobs. Also, neither Russia or China have bombed them either, yet they are headed to some of the countries that have (NATO) or have, at the very least, quietly condoned it.
Your best post yet apeman, Where is Mak to answer that.
shortonoil on Sat, 12th Sep 2015 4:05 pm
Not only is China in serious trouble so also are her trading partners; Indonesia, Malaysia, Turkey, Brazil, and Australia. They are commodity producers that relied on China for their market. This isn’t just a Chinese problem, it is a world wide commodity, and banking problem. As China spirals down, so also will the rest of the world. When half of a country’s steel production goes to building freighters to haul iron ore; you can be pretty sure things are going to end well!
apneaman on Sat, 12th Sep 2015 5:02 pm
Boat wake up, do you even read who comments on what? First off I am not a promoter of Russia or China or anyone for that matter and I asked the very same question about refugees yesterday. Get your shit together before firing off a response. Take notes or something you are looking stupider by the day.
Boat on Sat, 12th Sep 2015 5:21 pm
apeman,
You dimwitted boat anchor. lol I said I liked your comment. I agreed with your comment. I was poking fun at Mak because anything China related that is negative like you don’t see there refugees going to China, he will ignore. Them refugees aren’t dumb. They know where there is a better life. They just want a chance to be a working drone like me.
apneaman on Sat, 12th Sep 2015 5:29 pm
How many can they take before it cancels out the abundance and/or the natives rebell? Some are already rebelling including politicians.
Boat on Sat, 12th Sep 2015 5:36 pm
apeman,
You should know my view. I support no immigration of any kind. Sustainability means less people not more. I will support any poliicion
Boat on Sat, 12th Sep 2015 5:38 pm
politician that agrees as long as their anti war.
Apneaman on Sat, 12th Sep 2015 7:16 pm
What should the Europeans do Boat?
Boat on Sat, 12th Sep 2015 9:00 pm
Apneaman,
Arrest and fine anyone who gives an illegal a job.
apneaman on Sat, 12th Sep 2015 9:42 pm
Oh like they do in America….Bahawwwww
Makati1 on Sat, 12th Sep 2015 10:51 pm
Ap, Boat does not seem to grasp reality in America today. Even eight years ago, I used to pass the local 7-eleven and see the Mexicans standing in the parking lot waiting for a job at 7am. By noon, they had all been put to work somewhere, for cash.
Cheap labor and no income taxes, insurance, etc. to pay is a mighty incentive to “break the law”. If the government tried to arrest all of the illegal employers, the courts would be backlogged for years. Not going to happen. You break at least one law everyday and don’t even realize it. There are over 600,000 laws on the US books today. No-one knows all of them.
For example: “40,000 new laws go into effect in 2012”
http://www.nbcnews.com/id/45819570/ns/us_news-life/t/new-laws-toughen-rules-abortions-immigrants-voters/
apneaman on Sat, 12th Sep 2015 11:26 pm
Mak, yeah but he seems content and that has to count for something – for now. What difference does it make knowing? Denial evolved for a good reason, but it’s just not all that compatible when it comes to large scale civilizations. Not out right politically motivated deniers, but the everyday ones who think most problems are being looked after by TPTB or are far far away in the future, are some of the happiest people I know. What good has educating oneself in the sciences, history, psychology, sociology done? Has anyone you warned taken any serious steps to protect themselves? Ever find you can’t talk about these things around others/ “pleasant company”? Worry much? More anger than normal? Frustrated? Dread for the young ones? Knowing is a fucking curse Mak and in spite of all the effort I have put into acceptance, I still have my moments. Don’t you ever wish you could convince yourself nothing too bad will happen to you or yours? Dooming is obsessive – you can’t look away. It’s fascinating in a horrific sort of way. A good dose of stoicism and a sense of the absurd helps. C’mon, you could not make this shit up – it’s the ultimate comedy of errors. Unfortunately for Boat, far too many seeds have been planted from him hanging around here.
Makati1 on Sun, 13th Sep 2015 5:52 am
Ap, yep, you are correct. I have/am warning others all the time, but so far only my step-sister and my partner here in the Ps have seen the light and started to prepare. Some of my family have even asked me to not talk about anything ‘unpleasant’ like climate change, collapse or war.
I don’t worry about it. I’m 71 and have seen a good life. Not that I am in a hurry to leave it, but… Nothing like a challenge to keep the old brain cells ticking along. If I live another day or 30 years is OK with me. Most of the world is suffering daily from the wars of choice my country is pursuing. I am ashamed to admit it is my country now.
Oh, and I do not believe in anything after death except zero consciousness. Like turning off the computer. Zero activity except body rot in the case of animals like us. From dust to dust. Makes it easier, I think.
I live today for the 24 hours it is, not to prepare for some fantasy place of perfection after or to make death easier by pretending that I will be with my family again. When it comes, I will never know it happened. Only those I leave behind will know, and even they will allow me to pass into their forgetfulness.