Market hampered by tepid Asian oil demands

Crude prices drop 20% in face of plenty supplies and weak consumption

As the global oil market frets about a stubborn supply glut, faltering demand growth in key Asian crude importers is further hampering efforts to restore market balance.

A fuel glut in China, a hangover from demonetization in India, and an aging, declining population in Japan are holding back crude oil demand growth in three of the world’s top four oil buyers.

The three countries make up a fifth of 97 million barrels per day ( bpd) in global oil consumption, and any hiccups among them will mean lower- than- expected oil demand growth in Asia, helping to undercut the OPEC- led effort to support prices.

“We are indeed seeing lower demand from more than a few clients – air, marine, road, industrial ... They are actually consuming less fuel than anticipated,” said Michael Corley, managing director of Mercatus Energy Advisors.

In China, while vying with the US as the world’s biggest oil importer, imports in May were still at a near record of 9 million bpd, but a looming cut in refinery operations is set to hit demand for crude oil in the third quarter.

In India, which overtook Japan as the world’s third- biggest oil importer last year, crude imports fell by more than 4 percent between April and May to around 4.2 million bpd, as after- effects of the country’s recent demonetization program hit consumption.

For the first five months of this year, India’s imports are about flat to the same period last year, following an annual rise of 7.4 percent last year.

In Japan, Asia’s most advanced economy, oil demand has been in structural decline for years due to a declining, aging population and the rise of cars with better mileage or that use alternative fuels.

In April, Japan imported around 3.5 million bpd, down from a peak of 5.9 million bpd hit in 2005.

Coupled with plentiful supplies, the stuttering demand in Asia has contributed to a 20 percent price fall for Brent crude oil LCOc1 to around $ 45 per barrel, in what is the biggest slump in a first half of a year since 1997.

Oil futures edged higher on Friday with a lift from a weaker dollar, but finished a fifth straight week lower as OPECled production cuts have failed to reduce a global crude glut.

For the past week, both Brent futures LCOc1 and US West Texas Intermediate crude CLc1 lost 3.9 percent, and oil currently sits just off 10- month lows, beset by ongoing worries about rising production. The five- week slide represents the longest stretch of weekly declines for the front- month contracts since August 2015.