China and US making waves in the oil market

The crude oil market has been going several fundamental shifts these past couple of W-O-W change years. With shale oil creating havoc in terms of key production and consumption regions and the “opening of the taps” agreement made by OPEC back in 2014 radically changing the supply/demand balance. During these past three years however another import trend has been establishing itself, as Asia and the Far East have been slowly dethroning the U.S. and Europe as the main importing region of crude oil.

According to Mr. George Lazaridis, Head of Market Research & Asset Valuations with Allied Shipbroking said that “more specifically, China has been seeing a significant increase in its import volumes and gradually taking up the role as the world’s largest crude oil importer. This has been a gradual shift in the making, with slowly showing equal and in some few cases higher monthly import volumes during 2015-2016, while during 2017 it has surpassed imports by all other main imports for almost all of the past 7 months. This gradual shift has been in play through the development of several factors, including the gradual dominance of shale oil in the U.S., continual increase of importance of Chinese oil refineries in Asia, decreasing domestic crude oil output China, increasing strategic reserves volumes by the Chinese government and a gradual increase in domestic Chinese consumption”.

Allied’s analyst said that “when it comes to U.S. shale oil production this has more so played a role in the decrease of importance of U.S. imports, rather than any positive affect on China’s import volumes. As for the increase in strategic reserves, this has been an overwhelming theme being seeing across the globe, with most of the main consumer countries looking to take up the opportunity to stock up on reserves while the price of crude oil holds at lower price regions compared to its more recent historical trends. This however, can only go so far, with an essential limit being placed as to each countries capacity to store excess amounts before undertaking any major expansion in storage facilities. As such this leaves us with three remaining points which happen to be the most crucial for the tanker market”.

The shipbroker added that “the increasing importance of Chinese oil refineries has helped boost overall demand in the region while, given the extra surplus capacity they still hold we could still see this grow further before any further infrastructure investment is needed. As for the gradual decrease in domestic crude oil output, this plays a dual role, increasing the need and reliance on imports while also simultaneously increasing the need for higher strategic reserves. This dual boost has proved to be one of the most important in increasing the total volume of Chinese imports”.

“Having said that however, the most vital fundamental which points to the long-term growth prospects of the market is the remaining point which is Chinese domestic consumption growth. This has been the figure that most have been observing closely over the past couple of years and most have been hopeful will drive the next boom in crude oil trade, under the assumption that Chinese consumption figures per capita will slowly be playing a catch-up game to the figures we see in the U.S. and Europe. For the moment, however it seems as though less than half the increase in import volumes that has been noted in the first seven months of the year compared to the same period last year, has been going towards increased domestic consumption. This could prove to be the weak point in this positive momentum that has been building up, as with no firm consumption growth it will be hard to sustain the overall growth rate in imports being seen right now”, Allied’s analyst concluded.