Global Oil Demand Skyrockets with China Re-open for Business

 

Three years of strict COVID policies in China ended in December 2022. This reopening of China’s economy pushes global oil demand to hit its highest-ever level.

International Energy Agency estimates indicate oil demand could surge by 1.9 million barrels per day for a record-setting 101.7 million barrels per day.

“China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain,” the IEA said.

And while the total economic reopening of China is a long-time coming, those easing of restrictions do come at a cost. China is facing the world’s most significant COVID surge of the pandemic, with China’s public health officials estimating a potential 800 million people could be infected.

How will all these factors impact oil prices, which have risen along with the increase in oil demand? Ehud Ronn, Professor of Finance at the University of Texas, offered his perspective.

Ronn’s Thoughts

“I’d like to comment on the changes in the oil markets that have occurred since the beginning of the year, seemingly and apparently in conjunction with the opening of the Chinese market to further travel and trade activities. The first thing to note is that oil prices, since around the 4th of January, have gone up by about eleven percent, apparently in concert with that opening that is scheduled and occurring.

The second thing we’ve seen is that the correlation between the oil markets and the equity markets, specifically the S&P 500, has strengthened over this period. So, I’ll be submitting both of those documents as a way of bolstering that which I’m asserting, which is that the opening of the Chinese market has given rise to a strengthened demand for oil, which has culminated in a rise in both oil prices as well as the stronger linkage we see between oil markets and the equity markets, which is typical of a situation in which we have a demand side response on the oil markets to an increase in demand.”

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