Oil world tries to read Chinese post-pandemic demand

While all eyes are on the US presidential election, the energy sector is keeping a watchful scrutiny on what is happening on the other side of the world, in China and the rest of Asia. Who the Americans choose will of course have enormous influence on energy policy for years to come, not least because Donald Trump versus Joe Biden is, in many ways, a runoff between the traditional oil and gas industry and the alternative renewable future. But policymakers in the Middle East and in the broader OPEC+ alliance led by Saudi Arabia and Russia are looking eastward to determine more immediate priorities. The economic outlook for Asia, and of China in particular, will help decide some pretty pressing short-term policy issues.

At what official selling price should big producers such as Saudi Aramco and Adnoc mark their exports to China in the coming weeks? What stance should OPEC+ take toward compliance and compensation for the rest of this year? And, crucially, should it press ahead with plans to put an extra 2 million barrels per day ( bpd) of oil on global markets in January, as the historic April cuts deal envisaged?

An added variable has been thrown into the works with higher-than- expected output from Libya.

That is hardly a deluge of crude by global standards, in a world that consumes above 90 million bpd, though it is enough to complicate the already- delicate calculations of OPEC+ analysts.

But the big imponderable is China. The country blew hot and cold on oil imports since the April crisis, snapping up cheap oil one month and easing back on imports the next. It was hard to read the signals coming out of China.

Were the pauses in imports due to a slower rate of recovery from the pandemic lockdowns? Or was China simply chock-full of crude?

Evidence of the latter came in the form of the flotilla of crude tankers waiting to unload off the coast of the Shandong oil terminal. There have also been signs that China’s refineries are getting back in top gear, and are looking to increase crude purchases in anticipation of economic recovery. The economic logic suggests that if that is going to happen, it will take place pretty soon. According to the International Monetary Fund’s latest review, China — the only major economy forecast to grow in 2020, with 1.9 percent growth — will soar to 8.2 percent expansion next year.

Whether the Chinese liftoff comes in time to affect OPEC+ calculations over the planned January increase remains to be seen. From where oil policymakers are looking at it at the moment, it looks like a good bet that China, at least, will need plenty of crude next year to fuel its post-pandemic recovery.