Four misconceptions about China’s oil demand in 2019
In 2019, markets were bracing for a slowdown in China’s oil product demand growth, but grappling to quantify it given the uncertainty surrounding the US-China trade negotiations. At the same time, with the start of two new mega-refineries, markets were expecting strong crude demand, alongside a deluge of product output and exports.
In this comment, we explore the following four market misconceptions this year, and assess what they tell us about 2020:
- The impact of the trade war on the Chinese economy and on China’s oil demand growth: We argue that the Chinese economy was slowing before the start of the trade war, and even though the tariff tit-for-tat has exacerbated the deceleration, the market overstates the impact of a potential trade deal on the Chinese economy.
- We question whether the much-awaited infrastructure stimulus has materialised this year, and analyse what that has meant for product demand.
- We challenge the notion that the new mega-refineries have led runs growth in 2019, and that they have exacerbated the domestic gasoline surplus.
- Finally, we look at China’s crude supply sources in light of the ongoing US-China trade war and argue that the strong surge in Saudi imports this year is unlikely to continue in 2020. Even though China’s dependence on Middle Eastern crudes is rising, the government and buyers will continue to diversify their crude supplies.