Can oil prices remain low for China?

Cheming Yang

China is likely to surpass the U.S. as the world’s largest crude oil importer in 2015 as U.S. oil imports continue to fall. U.S. remained the world’s largest market for crude-oil imports in 2014 with net crude-oil imports at 7.2 million barrels per day in 2014, compared to 6.2 million barrels per day by China. It has been said although China is set to become the world’s largest crude importer, its import growth is still not sufficient to make up for the fall in U.S. import demand until 2019.
That is to say, global demand is decreasing.
The International Energy Agency (IEA) warned in February that ample supplies will raise global inventories before investment cuts begin to significantly dent production.
Oil stockpiles in member countries of the Organization for Economic Cooperation and Development (OECD) may approach a record 2.83 billion barrels by mid-2015, said the IEA.
While the supply-demand balance in oil was expected to tighten by end-2015, the IEA cautioned that “downward market pressures may not have run their course just yet.”
In addition, the China-Myanmar oil pipeline has now opened for test runs. The oil pipeline runs 771 kilometers from Myanmar’s western coastal port of Kyaukphyu to the Chinese city of Kunming.
The pipe provides the first overland access between China and shipments of crude oil sailing from the Middle East. Up until now, Middle East tankers had to sail through the Straits of Malacca between Indonesia and Malaysia in order to reach Asian buyers. A route that’s noted to be treacherous, and which adds almost two weeks to the journey for an average Saudi Arabia-to-Shanghai shipment. This pipeline also significantly lowers the cost of transporting oil inland for China.
As the global demand decreasing and the shipping cost for China lowering, the oil price looks likely to stay low for Chinese domestic market for a while. Low oil price is certainly good for the development of economy as a whole. With China facing the downward pressure of annual GDP, low oil price could provide a comfort zone for China in 2015.


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