$20 Oil Is Now A Distinct Possibility As Chinese Demand Wanes
By Nick Cunningham
OilPrice.com
Mon, 11 January 2016
Oil prices continue to hit new lows. WTI and Brent traded down by more than 2 percent during midday trading on Monday, as the markets continue to digest the worrying economic news coming out of China.
There are several reasons why China is spooking the financial markets. The most obvious is the latest plunge in the stock market. The Shanghai Composite fell another 5 percent on January 11, as the stampede that began in late December continues. The index is down about 20 percent in the past two weeks, and is off about 40 percent since June 2015. The wild gyrations and the haphazard response from the Chinese government has created an atmosphere of instability.
More importantly for crude oil is the fact that China’s worsening economic situation could cut into the country’s crude oil demand. And that happens in multiple ways. First, a decelerating economy by itself will lead to slowing demand growth for oil. That is already starting to show up in the data. In November, for example, China’s oil demand fell by 2 percent compared to the same month in 2014. In fact, since last summer, China has posted weak demand figures, and consumption growth turned negative in November. The contraction could be temporary, but the slow down might not be. China’s consumption growth might hit just 300,000 barrels per day in 2016, down from the 500,000 barrels per day averaged over 2015, according to a Barclays’ analyst quoted by Bloomberg.
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