Demand from China and India supporting oil prices
A recent report by the US Energy Information Administration and renewed worry about oil demand caused a drop in crude prices in mid-December, but now prices are on the rise again. Asian markets, namely China and India, are the main drivers of growth.
Crude oil prices are on the rise again due to increased demand from China and India, reports OilPrice.com citing Bloomberg. Chinese and Indian refineries are now buying more crude than in November. As a result, prices have increased, in some cases by as much as $3,5 per barrel over the benchmarks.
This year, China has been the main driver of oil prices. In the first half of 2020, when oil was at its lowest due to the Saudi-Russian price war and the looming pandemic, China went on a buying spree to build up its reserves. Now Chinese companies are still buying — and pushing prices up — thanks to increased refinery rates. In November, China’s average daily processing rate increase by 3,2% year on year and amounted to record 14,2 million bpd. The country is already on track to surpass the United States as the world’s biggest oil refiner next year or the year after. After adding around 1 million bpd of refining capacity last year, the People’s Republic has another 1,4 million bpd of capacity under construction. However, China’s move towards a more renewable-heavy energy mix makes some analysts doubt that all this capacity will be used.
Indian refiners are also operating at full tilt, as gasoline demand has surged amid the pandemic. The reason is a growing number of people choosing to drive their own cars instead of using public transport. The country is boosting its oil refining capacity. Prime Minister Narendra Modi said in November that the government planned to increase India’s refining capacity twofold over the next five years. Currently, India has a refining capacity of 250 million tonnes, or a little more than 5 million bpd.
“Asia is very much driving the market at the moment,” said Energy Aspects analyst Kitt Haines. “We will need the Asian buying momentum to sustain, otherwise things could get weak”, he added. The World Bank expects oil prices to average $44 per barrel in 2021 despite vaccine news, as consumption will remain lower than before the pandemic. Goldman Sachs is more optimistic seeing Brent at $65 per barrel next year.
Even if vaccinations start without delays, it will take months for Europe and the US to recover. Meanwhile, China’s economy has already returned to growth, and India’s GDP is also recovering faster than expected. These two countries together are driving oil prices higher, but the problem is that a stumble for either of them will mean an immediate slump in prices, warns OilPrice.com.