Declining Oil Demand
China’s demand for oil is declining and that is rapidly increasing worries among the oil ministers in the Middle East. The prices of oil could reportedly skyrocket owing to the curb imposed on Iranian supply by the U.S. sanctions. These sanctions are allegedly not the only factors that could affect the oil price.
The decreasing demand for Oil from China as a result of the China-US trade war could also affect the prices of oil. This latter reason is reportedly causing more worries among the Middle East ministers than the curbs on Iran supply by the US sanctions. While speaking to a media outlet, the oil and gas ministers for Bahrain and Oman noted that China’s oil demand could experience major declines as a result of the China-U.S. trade disputes which has led to the imposition of tariffs on several Chinese imports.
According to Shaikh Mohammed bin Khalifa Al Khalifa, the oil and gas minister for Bahrain expressed his belief that risk existed on the level of demand. He added that demand is going to be affected by the trade issue in a negative manner should the trade war persist. He also added that the strength of the dollar is a contributing factor.
The prices of oil have reportedly stabilized in the past two years majorly as a result of the deal made by the OPEC producers with the non-OPEC producers which contributed to curbing oil output. The price of a barrel now ranges between 70 and 80 dollars and that stands as a reflection of the deal.
The deal has, however, been criticized by President Trump. The U.S. president in July reportedly stated that the increased oil prices are affecting consumers a little too hard. The largest producers of oil in the world, OPEC and Russia promised to increase supply some days after Trump’s opinion. However, analysts have noted that Trump’s decisions have been taking its toll on the stability of the oil market. Media outlets report that the decision to re-impose the sanctions on Iran, a primary OPEC oil producer could increase the oil prices because Iran’s contribution to the oil supply globally is restricted.
Effects of Trade Tariffs
However, Trump’s decision to impose tariffs on several imports from China to the US has the likelihood of adversely affecting the economic growth of China. In turn, that could reduce its oil demand. The oil and gas minister for Oman expressed that the attention given to the effect of trade tensions on China’s oil demand was insufficient.
Mohammed bin Hamad Al Rumhy noted that there is a risk that the trade issues will also affect demand. He noted that a lot of people focus more on the supply and not the demand, i.e. the effect of Iran’s stoppage of its supply, but people rarely consider what happens if there is a reduction in consumption on China’s part.
He added that he saw the possibility that China’s level of consumption will be adversely affected in the event of a serious trade dispute between China and the U.S. He further noted that it could affect the production and exportation ability of the oil producers.
In 2017, China outperformed the U.S. as it became the largest importer of crude oil in the world. It reportedly imports 8.4 million barrels daily while the U.S. imports 7.9 million daily. Also last year, 57% of its crude oil imports were from oil producing countries within OPEC.
That was a significant decline from a previous peak of 67% in 2012. However, it still made it a significant importer of crude oil from OPEC as well as its Middle East countries. Russia allegedly outperformed Saudi Arabia to become China’s biggest source of crude oil as it exported 1.2 million barrels daily to China as compared with 1.0 million export per day by Saudi Arabia in 2017.
In July, the oil imports of China reportedly recovered slightly following its fall in the previous months. However, the imports still found its way as part of the lowest so far this year as a result of a decline in demand form the smaller independent refineries in China. Reports have it that Oman is a major oil supplier to China as the country bought nearly 90% of Oman’s exports last year.