As the global oil market frets about a stubborn supply glut, faltering demand growth among key Asian crude importers is further hampering efforts to restore market balance.
A fuel glut in China, a hangover from demonetization in India, and an ageing, declining population in Japan are holding back crude oil demand growth in three of the world’s top four oil buyers.
The three nations make up one-fifth of 97 million barrels per day in global oil consumption and any hiccups among them will mean lower-than-expected oil demand growth in Asia, helping to undercut the OPEC-led effort to support prices.
“We are indeed seeing lower demand from more than a few clients — air, marine, road, industrial... They are actually consuming less fuel than anticipated,” Mercatus Energy Advisors managing director Michael Corley said.
In China, vying with the US as the world’s biggest oil importer, imports last month were still at a near record of 9 million barrels per day, but a looming cut in refinery operations is set to hit demand for crude oil in the third quarter.
In India, which overtook Japan as the world’s third-biggest oil importer last year, crude imports fell by more than 4 percent between April and last month to about 4.2 million barrels per day as the after-effects of its recent demonetization program hit consumption.
For the first five months of the year, India’s imports were about flat from the same period last year, following an annual rise of 7.4 percent last year.
In Japan, Asia’s most advanced economy, oil demand has been in structural decline for years due to a declining, ageing population, and the rise of cars with better mileage or that use alternative fuels.
Japan in April imported about 3.5 million barrels per day, down from a peak of 5.9 million barrels per day in 2005.
Coupled with plentiful supplies, the stuttering demand in Asia has contributed to a 20 percent price fall for Brent crude oil to about US$45 per barrel, in what is the biggest slump in a first half of a year since 1997.
In the latest indicator of a supply overhang, traders said that five very large crude carriers have been chartered in recent days to store unsold oil.
Each carrier can hold about 2 million barrels of oil and the five chartered for storage add to about 25 supertankers already sitting in southern Malaysian waters.
In a market condition known as contango, where spot crude oil prices are cheaper than those for future delivery, it is profitable to store oil for a later sales.
Currently, spot Brent is almost US$1.5 per barrel cheaper than that for delivery in early next year.
“If oil prices head lower, floating storage will get more traction,” said Ashok Sharma, managing director of ship broker BRS Baxi in Singapore.
The cheap spot price comes despite the effort led by the OPEC to cut production by 1.8 barrels per day that has been in place since January.
Doubts over OPEC’s compliance with its own targets and soaring US output have led to skepticism that markets will rebalance soon.
“The slide in oil prices continues ... as markets remain skeptical of OPEC’s ability to balance supplies,” Australia & New Zealand Banking Group Ltd said yesterday.
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