The China Conundrum

11 Jan 2019; The news from China has been mostly negative in recent weeks. One report after another seems to indicate that economic growth and oil demand are on the way down. In a publication titled “Darkening Skies”, the World Bank forecast that China’s GDP growth for 2019 will be 6.2%, down from an estimated 6.5% in 2018 and 6.9% in 2017. It is important to remember that, while this is down from the very high levels of the early 2000s, it is still a robust growth rate. A gradual slowdown in the growth of China’s economy was always expected as the economy expanded, and the country became more prosperous. However, the rapid growth of China’s economy in the first decade of the 21st century has made it into the second largest oil consumer in the world (after the U.S.) and the largest crude oil importer. A relatively small change in China’s GDP can therefore have a significant impact on the oil and tanker market (in particular on the demand for VLCCs). On top of China’s underlying oil demand, we should also consider the impact of China’s Strategic Petroleum Reserve (SPR) program. Some analysts expect a material decline in SPR purchases in 2019.

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