The RN-Tuapsinsky refinery is operated by Rosneft Oil Co. in Tuapse, Russia.
Andrey Rudakov | Bloomberg Getty Images
SINGAPORE – As the world’s oil traders and analysts gathered at the annual Asia Pacific Petroleum Conference in Singapore last week, the oil slump and its goals were uppermost in everyone’s mind.
China, the main engine driving world oil demand, has been sputtering. In the latest September report from the International Energy Agency, annual global oil demand rose by 800,000 barrels per day in the first half of 2024, accelerating to the slowest growth since 2020.
The main reason for the decline is “very slow China,” where consumption contracted for the fourth month in a row in July, every year. China is the world’s largest oil importer as well as the second largest consumer, accounting for 15% of global oil consumption.
This cooling demand, coupled with oversupply, pushed US crude oil prices to their lowest level in a year earlier this month. Iraq and Kazakhstan, the main members of OPEC +, have produced more than their monthly quota under the agreement of the oil group.
Alliance members recently suspended plans to increase output by 180,000 barrels a day in October, as part of a program to bring 2.2 million barrels a day to the market over the next month.
Given the situation, low oil prices are a dominant theme at Asia’s biggest oil conference. The question is not whether oil will go down, but usually how much it will go down in the coming years.
Oil at $50
Goldman Sachs Co-Head of Global Commodity Research Daan Struyven estimates that crude oil prices could fall to $60 a barrel in the next two years., if China wants to remain tepid. He did not rule out a steeper decline.
“We think that Brent can fall to roughly $50 per barrel in a moderate (US) recession… We have a fairly mild view on the global economy,” said Struyven during the conference.
The U.S. economy remains resilient even as high interest rates aimed at curbing sticky inflation have been rising for a long time and fueling fears of a recession. That said, Americans believe the US is already in a recession, according to the survey.
It’s hard to look beyond China when thinking about the balance of supply and demand for the year ahead.
in Luckock
global head of oil at Trafigura
“It’s slow down. It doesn’t mean bust, I don’t think so. Stagnant? Perhaps, and that’s bad enough for oil,” said Torbjörn Törnqvist, CEO of commodity trading house Gunvor.
Trading giant Trafigura has fueled concerns about weak Chinese demand, and global oil consumption is linked.
“It’s hard to look beyond China when thinking about the supply and demand balance for next year,” Ben Luckock, global head of oil Trafigura, told CNBC on the sidelines of the conference.
“I suspect we’ll be in the 60s in no time,” he said. Global benchmark Brent is currently trading at $73.09 per barrel, while US West Texas Intermediate is at $70.57 per barrel.
Oil prices have fallen despite tensions in the Middle East, as well as the Russia-Ukraine conflict.
Luckock, however, warned about being too bearish. “It’s dangerous because there are so many events that can ruin your day.”
“I’m not going to put all your chips on the short table,” he added.
Can India get in?
China’s weakness has prompted some to look for alternative oil demand drivers, with some looking at India as a potential candidate. India is the third largest oil consumer with about 5 million barrels of oil per day, 5% of the world’s oil consumption.
According to IEA projections, India is poised to lead oil demand growth in 2024, surpassing China for the first time with an estimated increase of 200,000 barrels per day.
India is the world’s fastest growing large economy, and is on target to overtake Japan and Germany to become the world’s third largest economy by 2027.
Hong-Bing Chen, general manager at Chinese refiner Rongsheng Petrochemical said he sees more growth in India, as well as more gasoline and gas oil consumption from the South Asian country.
Things are slowing down. It doesn’t mean bust, I don’t think so. Stagnant? Perhaps, and it is bad enough for oil.
Torbjörn Törnqvist
CEO of Gunvor
Other experts were more circumspect.
“Remember that Indian demand is one-third of China’s demand,” says Vandana Hari, founder and CEO of Vanda Insights. “So will there be another China in terms of global oil demand growth in our lifetime or potentially afterwards? I don’t think so,” he said.
India’s growth rate will be consistent and long-term, until the mid-2040s, but it will not be the same size and magnitude as China’s, said Fereidun Fesharaki, chairman of energy consultancy Facts Global Energy.
