China’s virus crisis is highlighting the country’s role as oil’s swing consumer. Crude-watchers often see Saudi Arabia as the swing producer in the 100 million barrel per day industry, given its 10% share of the global market and control over the biggest chunk of spare capacity. As demand from the People’s Republic shrinks and the oil price sinks to $55 a barrel, the challenge is working out what to anticipate from the world’s biggest oil importer.
China had been expected to consume 13.7 million bpd of crude in the first three months of 2020, according to Jefferies estimates. That’s second only to the United States, but without the latter’s huge domestic output. Those forecasts are now in shreds. Chinese consumption may fall by 25% in February – equivalent to more than 3 million bpd – the Financial Times reported on Wednesday. That’s a big problem given that the country accounts for 14% of global oil demand – double what it consumed at the time of the SARS virus in 2003.
It’s a particular headache for China’s biggest oil supplier. Saudi Arabian exports to the country rose to 1.7 million bpd in 2019. Were the Organization of the Petroleum Exporting Countries, and associates like Russia, to extend an output reduction of 500,000 bpd agreed in December, or shrink production by the same amount again, the global price may start to recover.
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