The strong economic recovery throughout much of Asia is driving high demand for crude oil. Demand is expected to remain robust going forward, provided economic activity continues to rebound.
Refiners in China are increasing imports of crude oil as they look to meet growing domestic demand, driven by increased activity in their industrial and transport sectors. China reported GDP growth of 2.3% in 2020, with fourth-quarter GDP coming in at 6.5%, after it succeeded in getting COVID-19 cases under control early in the year, enabling it to lift lockdown restrictions and allow economic activity to resume.
The economic recovery in China fed through into high oil demand. Despite the disruption caused by the COVID-19 pandemic in the first quarter, and some monthly volatility, China’s crude oil imports for the whole of 2020 rose by 7.3% year-on-year to reach a record 542.4 million metric tons, equivalent to 10.85 million barrels per day, according to figures from the country’s General Administration of Customs. The rise in imports was driven by a combination of refineries increasing their operations to meet domestic demand and the low oil price leading to commercial stockpiling.
The COVID-19 crisis in India is expected to curtail oil demand there in Q2, but the long-term trend still looks promising. U.S. imports to India have grown exponentially since the lifting of the oil export ban in 2016, and in February 2021 the U.S. was the second-highest exporter of crude oil to India at 463,000 barrels per day, according to the Energy Information Administraton (EIA). Overall, US crude oil exports to India hit a record high of 560,000 barrels per day in December 2020. Despite the COVID crisis, OPEC expects oil demand in India to rise again in the second half of 2021.
Demand for crude oil is expected to remain strong in Asia during 2021 if the economic recovery continues. China is forecast to record GDP growth of 7.4% in 2021, while the IMF estimates India’s economic growth increasing 12.5%.
In its May report, OPEC penciled in a 4% increase in demand for oil from all Asia Pacific countries during the year, with demand in the region expected to average 7.36 million barrels per day. Demand from China is predicted to rise by 8.4% to just over 14 million barrels per day, while in India it is expected to increase by 11.1% to nearly five million barrels per day.
Crude oil imports to China for the remainder of the year have received a further boost from the country’s Ministry of Commerce, which has increased the first batch of crude oil import quotas for non-state companies for 2021 by nearly 20% compared with 2020.
Strong demand for oil from Asia has led to a slight strengthening of Middle Eastern OSP differentials. Saudi Arabia regained its place as China’s main supplier of crude oil in December, accounting for nearly 18% of total imports at 1.6 million barrels per day. Russia was the second-largest supplier at 16%, followed by Angola.
Crude oil imports by China from the U.S. have also increased, soaring by 88% in 2020. US exports to China averaged 719,000 barrels per day in December 2020, up from zero in the same month of 2019, according to the EIA. Although U.S. exports to China fell to 269,000 barrels per day in February, the country remains one of the largest importers of U.S. crude. Meanwhile, U.S. exports to Asia are understood to have hit a record high in May 2020, with more than 1.6 million barrels per day of crude oil exported to China, South Korea and India during the month.
Price Volatility Returns
Strong demand for crude oil from the Asia-Pacific region contributed to price rises during 2020. OPEC reported a 15% month-on-month increase in its OPEC Reference Basket in December, to stand at $49.17/barrel, its highest level since February 2020 before the economic impact of the COVID-19 pandemic was felt. Despite this jump, the yearly average for 2020 was still the lowest since 2016. The price rally has continued in 2021, with the OPEC Reference Basket rising further to $66.86/barrel by the end of April.
Crude oil futures prices point to the potential for further price increases in 2021, as the rollout of COVID-19 vaccinations across the world is enabling social distancing restrictions to be gradually lifted and normal economic activity to resume. But within this upward trend, there is still likely to be short-term price volatility after OPEC and its partners in the OPEC+ Alliance agreed to set their output levels on a monthly basis, rather than the previous quarterly or even half-yearly one.
Further volatility could also be caused if economic recoveries stutter when stimulus packages end and government support is withdrawn. This could potentially delay the return to normal economic activity globally, and by extension have a dampening effect on crude oil demand.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Ad Disclosure: The rate information is obtained by Bankrate from the listed institutions. Bankrate cannot guaranty the accuracy or availability of any rates shown above. Institutions may have different rates on their own websites than those posted on Bankrate.com. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where, and in what order products appear. This table does not include all companies or all available products.
All rates are subject to change without notice and may vary depending on location. These quotes are from banks, thrifts, and credit unions, some of whom have paid for a link to their own Web site where you can find additional information. Those with a paid link are our Advertisers. Those without a paid link are listings we obtain to improve the consumer shopping experience and are not Advertisers. To receive the Bankrate.com rate from an Advertiser, please identify yourself as a Bankrate customer. Bank and thrift deposits are insured by the Federal Deposit Insurance Corp. Credit union deposits are insured by the National Credit Union Administration.
Consumer Satisfaction: Bankrate attempts to verify the accuracy and availability of its Advertisers' terms through its quality assurance process and requires Advertisers to agree to our Terms and Conditions and to adhere to our Quality Control Program. If you believe that you have received an inaccurate quote or are otherwise not satisfied with the services provided to you by the institution you choose, please click here.
Rate collection and criteria: Click here for more information on rate collection and criteria.