China Will Be The Big Winner In OPEC’s Production Decision

When OPEC decided on Nov. 27 not to reduce production below a nearly 3-year-old cap of 30 million barrels a day, the losers were producers such as the United States, whose boom in shale oil requires expensive extraction methods, and Russia, whose economy relies perhaps too heavily on energy. Even OPEC members will see losses of revenue, especially those outside the oil-rich Persian Gulf.

The effect on China, though, is mostly beneficial. China doesn’t make money on oil, it buys it, relying on imports for almost 60 percent of its domestic oil supply, and is the world’s largest net importer of oil. And the lower the price of oil, the more affordable it becomes for China to develop its economy, which is now in a period of slow growth.

It can also buy more than it needs now and warehouse it for times when the price of oil rises again.

…With lower prices, which began dropping in mid-June 2014, China will have saved as much as $30 billion by the end of the year if prices keep falling, Lin Boquiang, the director of China Center for Energy Economics Research at Xiamen University, told Xinhua.

The US surge in production isn’t the only cause of lower oil prices, though. Another reason is the slight slowing of economic growth not only in China but also in Europe, which means lower energy demand. In fact, China’s economy is so sluggish that it could keep oil prices depressed for years, according to Andy Xie, formerly Morgan Stanley’s chief economist for the Asia-Pacific region.

“China’s energy demand, the only source of growth for a decade, has fallen sharply,” Xie told The Globe and Mail of Toronto. “[T]he whole damn thing is driven by China. When the investment cycle turns down, everything goes down.”

Full article: China Will Be The Big Winner In OPEC’s Production Decision (OilPrice)

Comments are closed.