Little is known about two of the major drivers of today’s global oil market: the flow of sanctioned oil and Chinese stockpiling.
Add to that uncertainty over global trade wars, and this could explain, at least in part, why oil prices have remained relatively stable in recent months – around $65 to $70 a barrel for global benchmark Brent crude since July – despite forecasts for a protracted period of oversupply. Traders may be loath to make big bets when there is such disagreement about market fundamentals.
Just look at the widening disparities in major forecasting agencies’ near-term oil demand projections. The International Energy Agency expects consumption to grow by 740,000 barrels per day in 2025 and by an additional 700,000 bpd in 2026. OPEC, meanwhile, sees demand this year growing by 1.3 million bpd, with an additional 1.4 million bpd next year.
That’s a huge difference, one of the widest ever seen.
Explaining this disparity is complex, but one can start with China.
Chinese oil demand has been the biggest driver of global consumption since the early 2000s, even if its growth rate has slowed down in recent years.
China's crude oil imports have been a major point of discussion this year, as they have far exceeded refinery processing rates, suggesting a build-up in storage. The average volume of surplus crude in China hit 990,000 bpd for the first eight months of the year, nearly 1% of global demand, according to ROI calculations.
That surplus is particularly notable because Chinese refineries have been running at elevated rates, processing 14.94 million bpd in August, the second-highest monthly total in over a year, according to the National Bureau of Statistics.
China does not divulge data on domestic consumption, but estimates suggest it has not been so strong this year. The discrepancy between refining rates and apparent demand either points to significant blind spots in the Chinese market or that refiners are stockpiling refined products.
New world
Global oil inventories have a major impact on oil prices, as increases point to oversupply, and vice versa – and this is another place where clarity is lacking.
For decades, OECD countries represented the lion’s share of global demand. OECD stocks, which are reported to the IEA, have therefore been the industry’s primary metric for inventories. But while China is today the world’s second largest oil consumer, it does not report inventory data, obscuring a vital part of the market.
China is believed to have added 73 million barrels to its onshore crude oil storage since the start of the year, bringing storage levels to 1.18 billion barrels, around 60% of capacity, according to satellite analytics firm Kayrros.
Compare that to the increase of 40 million barrels in OECD industry-controlled and government-controlled stocks between January and July.
Further complicating matters for energy market observers is the growing use of so-called "shadow fleet"tankers to transport oil from countries that face extensive western sanctions, including Russia, Iran and Venezuela. Combined production from the three totals around 13.5 million bpd today, 13% of global supply.
The growing opacity of critical parts of the market complicates this assessment, however, making it more likely that oil prices are not properly reflecting today’s supply-demand balance.
