By on May 13, 2015

PetroChina-Station

Those hoping to make it big on oil commodities would do well to bet against the bulls on parade, as China won’t be around to keep prices afloat this time.

During the early days of the Great Recession, oil prices quickly regained footing thanks to China’s then-booming economic standing, Bloomberg reports. However, fuel use in the nation has slowed by half of what it was in the previous decade, following global trends of decreased consumption.

Global demand is expected to grow 1.3 million barrels/day to 94.58 million in 2016 according to the Energy Information Administration, with China taking 11.34 million barrels/day; the U.S. will use 19.44 million/day, lower than what was used in 2008. The figure is an increase of 3.1 percent over this year, yet pales when compared to the 11-percent jump in 2010. The spike delivered a boost to oil prices of 15 percent.

Combined with rising oil production pushing toward a glut in supply — to the tune of 1.8 million barrels/day in inventory currently, and 900,000/day during H2 2015 — China’s economic power faltering despite the government’s best efforts, and technological advancements reducing overall oil consumption, the global demand for oil will remain low for some time to come.

[Photo credit: Otebig/Wikimedia Commons/CC PD 1.0]

Get the latest TTAC e-Newsletter!

Recommended

7 Comments on “Oil Bull Market Rally Could Soon Falter Without China...”


  • avatar
    Big Al from Oz

    This doesn’t surprise me. I just read an article in Bloomberg on this very subject.

    The hangover from the GFC will be around for a longtime. Massive debt that is supposed to be minimized by economic growth. China’s growth is supposed to be slow at 6.8% this year (not bad considering).

    The US and many OECD economies have a lack of confidence at the consumer and business level.

    Businesses globally not investing back into their own infrastructure.

    Dirt cheap loan and extended loans.

    Inflated asset prices due to the injection of trillions of dollars globally.

    Yeah, I wonder why?

  • avatar
    Scott_314

    Well, I didn’t read the article and barely glanced at the numbers. No one know what’s happening with oil prices. No one. They might go up and might go down, might stay the same.

    On the other hand, it only takes mediocre minds like mine to know that oil companies are a decent long-term investment (not the commodity itself), especially when conditions make companies a bit cheaper than their long-term value.

  • avatar
    ydnas7

    Oil prices are just following iron ore prices.

    Iron prices are low because of
    China demand less than expected
    New production
    Old producers wanting to maintain market share.

    sounds familiar?

  • avatar
    Tonto

    One of the big mistakes is to associate oil solely with the automotive sector. Oil is much more than that. Oil is everything. Everything you have in your home is made out of oil or with oil or using oil. Pharmaceuticals, chemicals, plastics, etc. etc. all based on oil. It takes 400 kg of oil to make just one laptop computer. The only way is up.

  • avatar
    dash riprock

    Rising oil production is a reality, for now. Rig counts are significantly down but the producers in the shale formations have kept the ultra productive rigs pumping hard. Shale wells get played out in a few short years, some as little as 18 month. So it is possible that the production increase may be followed by a noticeable decline as these productive wells are shut in. Then it is a matter of if the price of oil is high enough to warrant the investment in drilling more wells.

    So, look at the sales figures of the automakers and look at what vehicle classes are selling best and what is the trend.

  • avatar
    Trichobezoar

    We made a small investment in oil & gas recently, since westerners are running out and buying big cars and trucks while the price war was keeping gas prices low. But its days are numbered now that electric power has become much more competitive.

    Over the past couple of decades, the price of solar power has come down from “astronomical” (as in, we only used them for satellites) to “cheaper than natural gas” as of just a few years ago.
    http://www.investmentu.com/assets/images/content/2015/03/price-of-various-energy-sources-1946-2012-chart.png

    The big problem being that since the US dollar got off the gold standard way back when, growth in oil consumption has been the main thing keeping the USD afloat, and without fail we’d readily go to war with anyone daring to sell oil in the global market with any other currency. So… could be interesting times ahead as we slip into a more IP-based economy, because if there’s anything sillier than fighting over cheap energy (energy is everywhere!), it’s fighting over ideas.

  • avatar
    wsn

    This analysis failed to understand that not only the demand will affect price, but the price can also affect demand. When the oil price is low enough, many previous impossible business models will now be viable. For example, heating oil for China (instead of coal).

    We are looking at a time delay here. If the low oil price is here to stay any longer, the Chinese demand will go back up.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • el scotto: @Dartdude Our Federal Government, thankfully, is not like Apple computer corporation. I have an iPhone 3...
  • el scotto: @SCE to Aux; I can think of three stand-alone Cadillac dealers. Lockhart Cadillac in Greenwood and Fishers...
  • Ol Shel: You should choose a car from a company that’s never had a recall, like: Nash, Duesenberg, Datsun,...
  • RHD: That’s a lot of money to put on the line for such a silly bet. Truth be told, ICE vehicles will be slowly...
  • DenverMike: The old fogeys say that. It assumes the grade coming up the mountain is the same one going down. Or...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Matthew Guy
  • Timothy Cain
  • Adam Tonge
  • Bozi Tatarevic
  • Chris Tonn
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber