Travelers at passport control at Shanghai Pudong International Airport on March 12, 2023, in Shanghai, China. The country, in its latest economic data release, saw a rather muted start to the post-Covid year, with industrial production during the first month of the year falling short of market expectations.
Vcg China Visual Group | Getty Images
China will make up a sizable portion of the recovery in global oil demand as the global economy stagnates due to rising interest rates, Wood Mackenzie said.
The research firm said in a report Thursday that it sees China’s reopening as the “biggest demand driver” for the recovery in oil demand this year – expecting the country to make up about 40% of the recovery in world demand for the commodity.
“The return to normal mobility in China is the biggest driver of demand, accounting for 1.0 million barrels per day (b/d) of the increase of 2.6 million b/d this year,” a team of analysts led by vice president Massimo Di Odoardo said in a report, laying out the base case scenario. That means 38.5% of the recovery in global oil demand will come from China.
Chinese President Xi Jinping in a recent visit to Moscow emphasized economic cooperation with Russian President Vladimir Putin for the next few years, including energy security. Xi, on his trip to Saudi Arabia, also stressed the importance of stability in the oil market.
Our China high growth scenario focuses on the economy growing by 7% in 2023 and 5.5% in 2024.
The company added, “With a significant recession, we see Brent rising from current levels to an average of $89.40/bbl by 2023.” current prices for commodities as last seen trading low, with Brent futures at $76.01 per barrel during the Asian session.
The company is optimistic about global growth this year – despite the World Bank and International Monetary Fund warning of a bumpy road ahead.
“We do not expect a global recession this year, despite recent turmoil in global financial markets following the collapse of Silicon Valley Bank,” the researchers said in the report. “But we expect the economic slowdown in western economies to continue for several months before reaching a turning point in the second half of 2023,” he wrote.
‘Under-promising and over-delivering’
While Wood Mackenzie says that private consumption will be the main factor behind the rise in China’s oil demand, there may be a change in the base case scenario that economic growth will be led by industry.
In the high-growth scenario, the company expects Chinese officials to take measures to stimulate the economy by increasing infrastructure spending, which is predicted to increase construction growth by more than 10% in 2023.
Wood Mackenzie predicts China’s economy will expand by 7% in this scenario.
China, in many of its latest economic data releases, saw a rather muted start to the post-Covid year, with industrial production in the first month of the year falling short of market expectations.
And the country’s leaders took a cautious approach to the economy in the latest government jobs report released earlier this month – setting a conservative target for gross domestic product of “about 5%” by 2023.
But “China’s historical GDP growth has a record of exceeding government forecasts – in 12 of the last 18 years, growth has exceeded the official target,” said Wood Mackenzie, adding that “This may be another case of under-promising and unfulfilled. .”
“Our China high-growth scenario focuses on an economy growing by 7% in 2023 and 5.5% in 2024,” the company said in its report.
Analysts at Oxford Economics, however, are of the opinion that the government’s measures will have the opposite effect. He expects that Beijing’s focus on tackling local government debt will limit infrastructure spending, and, by extension, demand for commodities.
“Higher transfers from central government to local governments … may mean that local government funding vehicles, which are used to finance local infrastructure spending without budgets, will cease to be the main funding support,” he said in a note.
“Alongside the rebound in private consumption-driven growth, this means we will see a less commodity-intensive recovery this year,” he said.
– CNBC’s Evelyn Cheng contributed to this report.
Correction: This article has been updated to accurately reflect that the Wood Mackenzie report predicted China’s contribution to the recovery in global oil demand for the year.