Why China's New Tax Policy Could Impact Global Oil Demand
Ellen R. Wald, Ph.D | Jul 18, 2018 05:01AM ET
Maybe Chinese oil demand projections are more complicated than most media are telling us.
China was a key source of demand throughout the oil price downturn. The country’s reported economic data helped convince market watchers that China would keep buying oil for consumption and for its strategic petroleum reserves. China’s small, independent refineries were permitted by the government to purchase certain quotas of crude oil on the open market. In addition to the massive amounts purchased for state-owned refineries, demand from these refineries was easy to forecast because of the biannual permit process.
Now, there are several important changes that could impact Chinese oil demand for the rest of 2018 and into 2019, and, by association, oil prices. These are issues that will not be reflected in the basic economic data China reports and may not turn up in major headlines.
The most obvious change has been an increase in crude oil prices. The price of the Brent benchmark has risen could actually see an increase in the amount of Iranian oil China is purchasing as sanctions go into effect.
However, those Chinese purchases of Iranian oil may not have much impact on the global oil market for a few reasons:
- The refineries might not purchase from anyone else if not from Iran, so the purchases may not displace any other purchases,
- That oil might not go anywhere else if not to these Chinese refineries, so it is not really on the open market, and
- The oil would be sold at a significant discount below the global prices.
Chinese oil demand plays a significant part of global oil demand but market watchers should be aware that the basic data offered from China often does not tell the entire story.
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