【MACRO Alert】Future Challenges and Opportunities, and New Trends in China's Oil Imports

Wall Street financial institutions, including Goldman Sachs and Morgan Stanley, have recently taken a pessimistic view of the oil market and have revised down their oil price forecasts. This adjustment reflects an increase in global crude oil supply, particularly from potential production increases by OPEC+ member countries. Both banks predict that the average global benchmark Brent crude oil price will be below $80 a barrel by 2025, with Goldman Sachs revising its price forecast down to $77 a barrel, while Morgan Stanley anticipates Brent futures prices to be between $75 and $78. Analysts generally believe that the oil market will face a situation of oversupply, leading to a downward trend in oil prices over the next 12 months.

Concerns about oversupply mainly come from several aspects: firstly, OPEC+ may decide to reverse voluntary production cuts, which will increase the supply of crude oil in the market. Secondly, the supply increase from non-OPEC oil-producing countries, especially in the United States where the growth in shale oil production could further exacerbate the problem of oversupply. In addition, a slowdown in global economic growth may lead to reduced demand, thus putting downward pressure on oil prices.

In terms of geopolitical risks, the eastern government of Libya announced that due to a dispute with the opposition in Tripoli over control of the central bank and oil wealth, all oil fields, terminals, and facilities are subject to force majeure, halting all oil production and exports. This decision means that the market will lose barrels of light sweet crude oil, which is currently difficult to replace. The eastern government of Libya, which controls most of the country's oil fields, is expected to see its decision to stop exports quickly reflected in real-time data.

Senior commodity analyst Jeff Currie warns that there are too many short positions in the oil market currently, and there is a risk of a short squeeze. Currie pointed out that after “carry trades” shifted much-needed funds away from the market, oil prices face a greater risk of soaring. High interest rates have prompted hedge funds and physical oil participants to cut up to $100 billion in futures positions and crude oil exposure, instead investing in the U.S. money market. However, as the Federal Reserve lowers interest rates, oil should become more attractive and attract capital backflows, similar to the yen “carry trade” that disrupted the stock market this month.

Some of the pessimism about oil prices from investment banks is also related to the bleak outlook for Asia's economy, with China's shift towards electric vehicles also suppressing fuel consumption in the largest crude oil importing country. In Europe, due to weak manufacturing and structural changes in the region's automotive market, diesel demand is thought to drop to levels below those seen during the COVID-19 pandemic. There are also signs of weakness in the gasoline market. Despite this, the American Petroleum Institute (API), which is industry-funded, predicts that U.S. crude oil inventories will decrease by 3.4 million barrels last week, which, if confirmed by official data later on Wednesday, would be the eighth decline in crude oil inventories in nine weeks.

On the other hand, in 2024, the growth rate of China's crude oil processing and consumption has slowed down. Affected by the stability of crude oil output and the high volatility of the international oil market, China's crude oil import volume has decreased to some extent. According to the latest data, in the first seven months of this year, China's crude oil imports were 318 million tons, a decrease of 2.42% compared to the same period last year. Although the overall import pattern has remained unchanged, the regional distribution of import sources has been adjusted, showing a diversified and unbalanced characteristic.

The operating load of the main refineries has remained relatively stable, with the level of crude oil processing not significantly different from the same period last year. Despite steady growth in crude oil production, the impact of international oil market volatility has led to a reduction in crude oil import volumes. According to customs data, from January to July 2024, China's total crude oil imports were 317.81 million tons, a decrease of 2.42% compared to the same period last year. Especially in July, China's crude oil imports were 42.34 million tons, a decrease of 8.86% month-on-month and 3.07% year-on-year.

The diversification of China's crude oil import sources continued to be reflected in 2024. In the first seven months, China had 40 crude oil import trading partners, with the top 15 partners accounting for 301.87 million tons of crude oil imported to China, representing 95.0% of the total import volume. A certain European country led the import rankings with 62.58 million tons, accounting for 19.7% of the market share. Saudi Arabia and Iraq followed with import volumes of 46.79 million tons and 36.14 million tons, respectively, representing market shares of 14.7% and 11.4%. Malaysia ranked fourth with an import volume of 35.68 million tons, representing a market share of 11.2%.

Against the backdrop of a global economic slowdown and reduced growth in energy demand, China's economy has maintained good performance, and its steady energy demand has provided certain support to the international oil market. Although China's crude oil import volume in recent months has been lower than expected and compared to the same period last year, the steady increase in domestic crude oil production and the reduction in crude oil import volume still account for more than 70% of the supply market. Considering that the growth in domestic crude oil production is not enough to match the growth in demand, imported crude oil will continue to be an important supplement to the supply market. It is estimated that in 2024, China's dependence on foreign crude oil will remain at a high level of around 70%, and the crude oil import volume may reach about 550 million tons.

Taking into account supply and demand dynamics, geopolitical risks, financial factors, and specific situations in China's economy, the global oil market will face a series of complex challenges and opportunities in the foreseeable future. Although oversupply and economic slowdowns put downward pressure on oil prices, geopolitical uncertainties and financial market fluctuations also bring risks and opportunities for market participants. As the world's largest crude oil importer, changes in China's market demand have a significant impact on the global oil market. In 2024, the reduction in China's crude oil import volume and the stability of refinery operating loads reflect China's efforts to optimize its energy structure and improve energy efficiency. At the same time, the diversification of China's crude oil import sources and the maintenance of its dependence on foreign oil also demonstrate China's important position in the global energy market.

As the global economy gradually recovers from the COVID-19 pandemic, the oil market needs to adapt to new energy demand patterns and the constantly changing international trade environment. Investors and analysts must closely monitor supply and demand changes, policy adjustments, technological progress, and environmental regulations to accurately grasp market trends. Looking forward, the global oil market will continue to evolve under the influence of various factors. Market participants should remain vigilant and be flexible in dealing with possible situations. At the same time, for long-term investors in the energy industry, now may be a good time to consider diversifying investment portfolios, exploring new energy technologies, and improving adaptability to market fluctuations.