Don’t be blinded by all the moving parts in the global oil economy.
In the end, China is driving oil prices right now and without robust Chinese growth, oil is dead.
The pace of recovery of the U.S. economy is considered the major factor that determines oil prices, as the future of the world’s leading economy is critical for future oil demand. But for now, the major driving force for world oil demand, that also supports oil tankers freight rates, is China. It is characteristic, that during February VLCC’s freight rates declined 28% in all routes because of the Chinese New Year holidays that affected negatively oil demand. It was the first and only reduction of freight rates during the last months, as the tanker market is on the road to a full recovery.
China’s economy is demanding more energy as has been the case for the past few years. However, there is a downward risk as the country comes under pressure to appreciate its currency which in turn would affect its economic growth. China’s oil demand reacted strongly to the government stimulus plans which aim at positive refinery margins.
February data indicated a strong hike in the country’s apparent demand exceeding a million barrels per day; nevertheless, the entire apparent demand does not end up being consumed as some goes to storage. As expected, most of the growth in oil consumption was in both transport and industrial sectors. All products experienced growth, except fuel oil which declined resulting from fuel substitution. China’s apparent oil demand this year is expected to inch 4.7% higher y-o-y exceeding last year’s growth by 160 tb/d. China’s plans to continue the development of rural areas will call for more oil demand this year as well.