China Fuels Global Oil Demand Recovery, Defying Economic Slowdown
Economic Growth, Infrastructure Spending Drive China's Impact on Oil Markets
As the global economy faces a slowdown due to interest rate hikes, China is poised to play a significant role in the recovery of oil demand, accounting for approximately 40% of the increase in 2023, according to research firm Wood Mackenzie. In their base-case scenario, China's economy is projected to grow by 5.5%, resulting in a 1 million barrels per day (bpd) increase in global oil demand out of the 2.6 million bpd total. This comes as the country emerges from strict COVID containment strategies and focuses on economic growth.
China's President Xi Jinping has emphasized the importance of energy security and stability in the oil market during his visits to Moscow and Saudi Arabia, signaling continued economic cooperation in the coming years. Wood Mackenzie forecasts that Brent crude oil will average $89.40/bbl in 2023, up from the current $75/bbl levels, barring a significant recession.
Despite recent financial market turmoil, the research firm remains optimistic about global growth this year, expecting the economic slowdown in western economies to reach a turning point in the second half of 2023. Wood Mackenzie also predicts that China's GDP could grow by 7% in a high-growth scenario, driven by increased infrastructure spending and construction growth.
While the International Monetary Fund and the World Bank warn of a bumpy road ahead, China has a history of outpacing government forecasts, often "under-promising and over-delivering." This suggests that the country's oil demand recovery could be even more robust than expected. However, some analysts at Oxford Economics argue that government measures to rein in local government debt problems may constrain infrastructure spending, leading to a less commodity-intensive recovery.
Regardless of the potential constraints, China's influence on the global oil market remains significant. As the world's largest energy consumer, its economic growth and oil demand recovery will continue to shape the trajectory of the market in 2023 and beyond.
