Crude Oil prices rose on Monday on Middle East uncertainty after the fall of Bashar al-Assad in Syria as well as expectations that China will stimulate their economy with lower interest rates thereby increasing oil demand.
The Red Dragon is a mysterious place but mostly because of its crazy energy demand. More predictions of peak Chinese oil demand are being met with skepticism because of all the past predictions that failed to come true.
Last month China saw a big uptick in crude exports rising 14.3% year over year. But that came after 7 months of falling imports. Weakness in Chinese oil demand really has been the only reason oil has been locked in the recent trading range. Yet this comes against the backdrop of predictions that China’s oil demand could peak as early as 2025 and that’s five years earlier than expected according to a report from the China National Petroleum Corporation.
They are predicting a spike in demand to 770 million tons of oil in 2025 before gradually falling to 240 million tons by the year 2060. That is a dramatic drop and pretty eye opening. Unless you look at their past prediction track record, especially regarding peak demand.
Javier Blass at Bloomberg calls them out for their past predictions that have failed. For example, he cites their past predictions unlike last year when they predicted that oil demand would peak at 770 million tons in 2025. Or the prediction that they made in 2020 that oil demand in China would peak before the year 2030. In 2019 they predicted that the oil demand would peak in 2030 and in 2018 they said it would peak by 2030 at 690 million barrels so quite a change in prediction.
Of course, they’re not alone on being wrong about peak oil predictions. The International Energy Agency also has predicted that Chinese oil demand would peak by the end of the decade at 18.1 million barrels per day or one million barrels higher than in 2023 when the growth rate was 2.7% of a year from 2023 to 2025.
If the reality is with more Chinese stimulus coming down the pike and even with the adoptions of massive electronic vehicles, the demand for China’s oil will continue to rise probably well beyond the year 2030.
And at the same time, we saw China’s coal imports in November hit a record high. China needs to import more coal because they must provide electricity to charge all those electric cars.
Bloomberg reports that, “Europe’s bid to build a homegrown battery industry to break China’s dominance in electric vehicles is failing.” Bloomberg says that “ The most high-profile setback yet came with the Chapter 11 bankruptcy of Northvolt AB, a Swedish startup whose backers include Volkswagen AG (OTC:VWAGY) and BMW (ETR:BMWG) AG. Fallout is spreading across the region as EV demand wanes and local manufacturers struggle to master the technology. Eleven out of 16 planned European-led battery factories have been delayed or canceled, according to a Bloomberg News analysis.
Bloomberg also writes that, “Meanwhile, 10 of 13 projects in the region by Asian manufacturers such as China’s Contemporary Amperex Technology Co. and South Korea’s Samsung SDI (KS:006400) are on track. That suggests their grip on the sector will only increase, putting Western automakers at a competitive disadvantage when there’s a supply crunch or political conflict.” No reports on whether or not Europe is going to have to import record amounts of coal like China to charge the electric cars. It didn’t help that Germany shut down all their nuclear power plants, oh well.
In December, the gasoline crack spread has led the charge in second place it looks like the diesel crack has started to turn higher. Seasonably cold temperatures have been the story of being the diesel crack come back.
We are getting support from the concerns about the OPEC production cuts starting to hurt in Europe. While the market tried to dismiss the cut extension. Funds have accumulated long positions in Brent crude.
Natural gas has eased off its spike high opening as winter weather is set to return. The key question here is how long.