The scale of OPEC+’s China problem is evident in yet another month of weak crude oil arrivals, with the world’s biggest importer recording a sixth consecutive decline in October.
Customs data last week showed imports of 44.7 million metric tons in October, equivalent to 10.53 million barrels per day (bpd), down from 11.07 million bpd in September and 11.53 million bpd in October last year.
For the first 10 months of the year China’s imports were 10.94 million bpd, down 3.7% on a per day basis from the 11.36 million bpd for the same period in 2023.

That decline of 420,000 bpd in China’s imports is a massive headache for the Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, in the wider OPEC+ group.
In OPEC’s latest monthly report the group cut its forecast for China’s oil demand growth to 580,000 bpd, down from a peak expectation of 760,000 bpd in the July report.
But even the lowered forecast seems wildly out of whack with the reality of China’s stumbling imports.

Of course, there is a difference between imports and total demand, which also includes domestic crude output and changes in inventory levels.
China’s domestic production has grown slightly over 2024 so far, and while the country doesn’t disclose inventory levels, it’s certain that they have been building stockpiles given that the volume of crude refined is well short of the total available from imports and local output.
It’s also worth noting that it’s the volume of imports from the seaborne market that will have the largest bearing on crude oil prices, and that feeds directly into OPEC+’s production policy.
The eight members of OPEC+ said on Nov. 3 that they will push back their planned increase of 180,000 bpd in December by another month.
The group had been due to raise output in December as part of a plan to gradually unwind a total of 2.2 million bpd of production cuts over 2025.

OPEC+ has been consistent in signalling that it will only ease output curbs when the market demand is there, so delaying the December plan was expected.
But the problem for the group is that it’s hard to see China’s crude demand recovering strongly while the world’s second-biggest economy struggles for growth momentum and oil prices remain higher than the global economic conditions most likely warrant.
Benchmark Brent futures have traded in recent weeks in a range between $70 and $80 a barrel, and have generally trended lower since the high so far in 2024 of $91.95 on April 15.
But the price also remains well above where it would be if OPEC+ members weren’t restricting output as much as they are.
China crude oil imports vs Brent price

TRUMP IMPACT

The geopolitical tensions in the Middle East as Israel battles against Iran and the militants it backs such as Hamas and Hezbollah are also adding a risk premium into the price of oil.
The number of risks for the crude oil market have also been increased by the election of Donald Trump to a second term as U.S. President.
There is considerable uncertainty as to how much of Trump’s rhetoric on the campaign trail will translate into actual policies, and some of them may exert contradictory influences on oil supply and prices.
Trump is in favour of loosening regulations on the oil sector and encouraging higher U.S. output, something that would be bearish for prices.
But with U.S. crude production already around record levels, there are questions as to whether the industry can pump more, and even if they could, would they want to given that this would lower prices and profits for their shareholders.
Trump also says he will bring peace to the Middle East, without presenting any details as yet. Assuming he can, this is also bearish for oil prices.
But at the same time Trump also wants to go hard against Iran over its nuclear programme, and any effective tightening of sanctions and rising tensions would be bullish for prices.
But the main risk of a Trump presidency is his stated intention of imposing tariffs of 10%-20% on all imports into the United States, and up to 60% on those from China.
If this includes crude it will hurt the margins of U.S. refiners that process imported oil, but it will also potentially harm U.S. exports of crude and refined products if other nations retaliate with tariffs of their own.
A new trade war with China would also likely hurt economic growth in China, delaying any recovery in crude oil demand.
The opinions expressed here are those of the author, a columnist for Reuters.

Source: Reuters edited by Christian Schmollinger