Crude Oil Markets: falling Chinese diesel consumption and Rising Russian Oil Exports

 

Russia oil imports by country: 2022 - 24

With the impact of the Middle Eastern volatility on crude oil prices having diminished, aside from minor spikes during occasional military flare-ups, long-term demand concerns now seem to be the primary driver of oil markets.

Although the atmosphere in the Middle East is far from settled, the ground realities paint more of a picture of psychological confrontation than that of physical on the battlefield; both Israel and Iran along with its allies, are weighing the options, while the world watches who is going to blink first.

As far as crude oil markets are concerned, meanwhile, two significant developments emerged this week: for instance, the Indian media reports that India bought $2.8 billion worth of crude oil from Russian in July alone; it is a far cry from India's position with regard to the Russian oil imports before February, 2022, when the war broke out between Russia and Ukraine; it was just less than 1% of India's total oil imports.

India, the world's second largest importer of crude oil, is not the only consumer that failed to resist the heavily-discounted oil from Russia; China has been doing the same, accounting for a staggering 47% of Russian oil exports; even the EU still gets some oil from Russia according to CREA, Center for Research on Energy and Clean Air. 

In separate development, the EIA, US Energy Information Administration, published a report very recently that China's consumption of diesel has significantly declined in June, 2024; it is the largest year-over-year decline since 2021, according to the EIA. 

The EIA attributes it to the economic slowdown in the world's second largest economy and its lingering real estate crisis. China's manufacturing PMI, a key indicator that reflects the health of the sector, has been under 50% for months. 

The EIA, however, has noted an interesting development in the fossil fuel sector in China; the fleet of trucks powered by LNG, liquified natural gas, has been growing, further reducing the use of diesel for transportation. 

The EIA does not see a statistical correlation between the falling prices of LNG and China's desire to go for LNG-powered trucks, though. Nor does it anticipate a hike in the price of LNG in light of this particular trend in China.

With the emergence of new realities, the price of Brent crude oil fell below $80 again on Friday. As of 11:30 GMT, the prices of WTI and Brent were at $76.80 and $79.91 respectively. The price of LNG, Liquified Natural Gas, was at $2.29, an increase from what it was last week.
Crude oil price in August
The behaviour of energy markets, once again, shows the significance of the Chinese economy when it comes to a sustainable demand. As the available data shows that China has not managed to achieve the estimated growth rate of 5.2% so far, the investors in the energy sector appear to have got cold feet when it comes to long-term investments. 

The decline in consumption of diesel, in this context, hardly boosts the investor confidence despite the emergence of LNG as a substitute for China's vast fleet of trucks.

All in all, the price of crude oil will remain in the current static state unless a significant military event takes place in the Middle East; despite the hype, it is unlikely, though, as boths sides in the conflict study the every single risk involved, while calling each other's bluff to be resonated with the respective domestic audience.  


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