Global Crude Oil Prices Surge to $89 Amid Robust Chinese Demand Despite Real Estate Concerns

Oil prices rallied to $89 per barrel in New York on Tuesday, underpinned by persistent production cuts by OPEC nations and a post-pandemic resurgence in economic activity, particularly in China, driving a worldwide price surge.

European benchmark Brent crude oil futures continued their upward trajectory, briefly reaching $92.38 per barrel on Tuesday, marking the highest level since November of the previous year.

U.S. benchmark West Texas Intermediate also achieved a similar peak of $89.29 on Tuesday morning, nearing the $90 threshold for the first time since November of the prior year. Prices have surged by approximately 25% since the end of June.

Last week, Saudi Arabia and Russia jointly announced an extension of voluntary production cuts until the conclusion of 2023, providing further impetus to the climbing prices. The International Energy Agency (IEA) is set to release its monthly report this week, which could potentially exert additional upward pressure on prices if it indicates robust demand.

According to OPEC’s September report, global crude oil demand is anticipated to reach a record 102.06 million barrels per day in 2023, reflecting a 2% increase from the previous year. China, the world’s second-largest crude oil consumer, is predicted to witness a 6% growth in demand, reaching 15.82 million barrels, a 50,000-barrel increase from the August forecast.

Despite lingering concerns about China’s economy, particularly regarding its beleaguered real estate sector, the IEA predicts that the country will account for over 70% of the demand growth in 2023. In contrast, demand in the U.S. is expected to remain relatively stable.

China’s crude oil imports experienced a substantial upswing in August, surging by 21% to 52.8 million tonnes compared to the previous month, translating to a remarkable 31% year-on-year increase and a 25% rise over pre-pandemic levels in August 2019.

The resurgence of economic activity since the conclusion of China’s zero-COVID policy in December has led to heightened travel, resulting in increased demand for gasoline and jet fuel.

Furthermore, China’s oil refining volumes have surged, reaching 2.037 million tonnes per day in July, ranking as the third-highest month on record, following March and April’s figures.

While overseas travel from China has not fully rebounded to pre-pandemic levels, expectations remain for continued growth in crude oil and petroleum product demand, as noted by Dominic Schnider, Head of Commodities and Asia-Pacific Currency Markets at UBS Global Wealth Management.

The global crude oil market is grappling with a shortage of around 2 million barrels per day during the July-September quarter, according to an analysis by the Japan Organization for Metals and Energy Security (JOGMEC) based on OPEC’s projections. Similar shortages are projected to persist in the October-December quarter and beyond.

Nevertheless, questions persist regarding international organizations’ visibility into China’s actual demand situation, leading to skepticism about the accuracy of their forecasts. China does not disclose its crude oil demand or reserves, prompting estimates from entities like the IEA to rely on refining and crude oil import volumes. However, some experts caution that increased imports may reflect reserve accumulation rather than actual demand.

Despite these dynamics, ongoing trends in crude oil prices are expected to be significantly influenced by China’s economic outlook. If factors such as a downturn in China’s gross domestic product materialize, crude oil could swiftly revert to a bear market, cautioned Ajay Parmar, an oil and gas analyst at HSBC Global Research.

Invite you’re colleagues

Share this opportunity
Scroll to Top

Let us call you.

Please enter a name and mobile or phone number.