During the past few months, crude oil forecasts have become a challenge. This is mainly due to the growing pressure on commodity markets. Although the markets continue to support the global economy, supply shocks and demand weakness are still in play. However, it’s important to remember that the risk is still skewed to the upside, especially when stocks deplete.
China is the world’s largest consumer of raw materials, but its oil demand has been slackening. A major factor in the decline is the country’s COVID-19 policy. The government is imposing stricter rules for shipping goods and gasoline. While the policy is not yet a problem, it could lead to further restrictions in the future.
The United States is also impacted by the policy. Although the country’s economy is expected to recover from its recession, the government’s fiscal stimulus program is unlikely to pass through Congress. In fact, it may be stymied by gridlock in the next few years. As a result, oil and natural gas prices are projected to ease in the next few years. The rise in the US dollar is also a major factor. This has discouraged importers from buying higher-priced crude oil. In turn, the supply gap between the Chinese demand and the domestic supply has widened.
The COVID-19 pandemic has coincided with a global economic downturn. The global recession has weighed on oil consumption and energy prices. The resulting volatility in the oil market has been a boon for consumers, especially in Asia. While the Middle East continues to be the dominant producer, oil imports from the Middle East are rising. These are increasing the competition for crude oil in the Asian Pacific region.
In addition, the zero-Covid policy is weighing on the commodity complex. While the strategy will produce new foreign policy tensions, it is also a major contributor to the oil price war. In order to maintain stable supplies with a volume above two million barrels per day, it is necessary to make long-term trade commitments. The country’s domestic oil production has failed to keep up with the growing demand. This means that a large percentage of the nation’s oil needs will be met through imports. In 2005, the Chinese dependence on oil imports would reach 30-35% of the total consumption.
The emergence of China’s oil strategy will be a major challenge, though. The government will need to choose the best regional neighbors to source oil from and the policy will generate a variety of security and political challenges.
The country’s oil situation currently involves a large import demand and little overseas investment in oil production. Several of its three primary oil producing zones are located in the northern and northeastern parts of the country. This is a problem, as these regions are considered to be near depletion. With the right investments, however, these areas can sustain their current level of production. In addition, the country’s major exporters are planning to increase their coal production, putting climate change goals at risk
