Oil prices slumped to a seven-week low on Tuesday due to uncertain demand outlook, particularly from China, the world's largest importer. Brent crude closed at $79.3/bbl, while WTI fell to $76.2/bbl. Prices have since recovered 3% following the assassination of the political leader of Hamas in Tehran, with Brent reaching $81.4/bbl.
Chinese oil demand remains cause for concern with major banks, including Citigroup Inc., downgraded their growth forecasts for China's economy.
Despite OPEC+ supply cutbacks, which have modestly supported crude prices this year, the global oil market remains susceptible to fluctuations in Chinese demand. China is expected to dominate global oil demand growth this year, therefore any domestic demand hiccups could significantly impact the global balance.
Chinese oil demand has been lackluster so far this year, with seaborne crude imports down by 1 m b/d compared to the 2023 average. In June, refiners cut throughput to support product margins, temporarily boosting diesel crack spreads before margins fell again. The Chinese government is now considering easing proposed restrictions on refined product exports and may issue a significant batch of export quotas in September, hoping to shift excess supply to seaborne markets, according to Argus.
While some analysts predict that China's crude oil imports will remain weak in the second half of the year, the IEA forecasts that China's oil demand will increase by 0.6 m b/d in the latter half of the year compared to the first. However, China has built onshore oil inventories for the past five months, therefore it may rely on these reserves rather than increasing imports. Alternative, they may be building stock coverage in anticipation of a difficult geopolitical environment ahead. This reduced demand in H1 this year contributed to VLCC rates dropping to their lowest point in nine months in mid-July.