Demand Risks Mount for China in Second Half

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China’s oil demand rose year on year by a sturdy 1.1 million barrels per day in the first half of 2023. But demand last year was marred by widespread Covid-19 lockdowns. Now, China is having a hard time keeping its economic recovery on track, which doesn't bode well for its oil consumption the second half, when forecasters expect big things from the world's most important demand hub. China accounts for 37% of Opec's 2023 global demand growth forecast of 2.44 million b/d and 70% of the International Energy Agency's 2.2 million b/d growth forecast. It accounts for nearly half of Energy Intelligence’s global demand growth forecast of 2 million b/d. The long-tail effects of an ailing property sector, a drop in product exports to struggling foreign economies, and $35 billion in local government debt are holding back Chinese demand. Nearly three years of "zero-Covid" policy and the collapse of real estate, a key tenet of the country’s growth since the 1990s, have wiped out wealth and forced households and private businesses to save more of their income or repay debt, rather than consuming or investing. Pent-up consumer demand has quickly fizzled out after the initial boost of the late 2022 reopening. Consumers are still balking at big-ticket expenses, like cars or long-haul flying. Quarter-on-quarter GDP growth in the second quarter was only 0.8%. China’s economy needs more stimulus, but that entails more debt.

Oil Demand, Macroeconomics
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