17 hours Ago By Alex Kimani
The energy sector selloff has intensified after the Federal Reserve delivered a harsh reality check last week, dashing hopes for a deep cut in interest rates. a 25 basis point rate cut, as widely expected, but warned about higher inflation and fewer rate cuts in 2025. Fed Chair Jerome Powell went on to cite inflation as one of the primary reasons for forecasting a slower pace of interest rate cuts.
Oil and gas stocks have collectively declined nearly 15% over the past month as energy markets struggle to find direction. Over the past couple of weeks, oil prices have struggled to break out of $68-$72 per barrel range for WTI, and $71-$75 a barrel for Brent. “It feels as if oil prices must break out of their current, tightish, range.
But it also feels as if they need a catalyst for this to happen,” David Morrison, senior market analyst at Trade Nation said. Also weighing on oil prices is a brawny dollar. The U.
S. dollar index has gained 8.0% over the past three months, with the rally accelerating after Trump won the November presidential elections.
The US dollar has strengthened on investor expectations of dollar-positive policies including domestic tax cuts and widespread imposition of tariffs with the aim of restoring US manufacturing competitiveness. Meanwhile, the shallower rate cuts are positive for the dollar. The slowdown by the Chinese economy has not been helping oil prices, either.
China's economy expanded 4.6% in the third quarter, the slowest pace since early last year, as the country struggles to boost flagging growth. Two weeks ago, Beijing unveiled plans to adopt its first monetary policy stance since 2010 as it looks to boost economic growth.
Related: Iraq Plans to Slash Gas Flaring Over the past couple of decades, China has carried the lion’s share of global oil demand growth thanks to the country’s remarkable economic boom. But signs are now legion that China’s growth machine has finally hit the skids and may never return to its glory days. The factors that helped sustain China’s rapid growth since the global financial crisis are unlikely to be replicated in the next decade, particularly in sectors of property construction and local government investment.
Indeed, China’s economic slowdown has mainly manifested in the property sector’s decline, hardly surprising considering that the industry represented 20 to 25 percent of GDP at its peak. Unfortunately, new annual housing starts are now , with the sector expected to remain below half of its previous size over the next decade. However, China is poised to lose its prominence in global oil markets.
“ fast,’’ Emma Richards, senior analyst at London-based Fitch Solutions Ltd, told The Times of India. According to the analyst, over the next decade, China’s share of emerging market oil demand growth will decline from nearly 50% to just 15% while India’s share will double to 24%. But it’s not just a dramatic slowdown in its economy that will make China a less important player in global oil markets.
The country’s booming EV sector will rapidly lower oil demand much faster than India’s: China sold 6.1 million EVs in 2022 compared with just 48,000 sold in India. Last year, revised its oil demand forecasts downwards, saying peak domestic gasoline demand has already passed and it’s going to be downhill from here thanks to China’s EV revolution.
If accurate, the repercussions will be global considering China has for long been the biggest growth market for refined oil products. According to , Chinese new car buyers are now choosing "new energy vehicles" (battery-electric and plug-in hybrid cars) at a rate of 37.8%, up from just 5.
4% in 2020 Whereas Scandinavian countries like Norway (87.8%), Iceland (56.1%) and Sweden (56.
1%) lead in terms of , China still sells ~10x more EVs than all those three combined. Further, China has a lot more room for growth given its huge population and the fact that currently, less than 5% of cars on Chinese roads are NEVs Sinopec now forecasts that 2024 and beyond will see declining gasoline demand. In contrast, India is nowhere near as aggressive with its clean energy push.
India’s coal minister previously declared that the country has no intention of ditching coal from its energy mix any time soon. Minister Pralhad Joshi said that coal will continue to play an important role in India until at least 2040, referring to the fuel as an affordable source of energy for which demand has yet to peak in India. " Joshi said, adding the fuel will continue to play a big role until 2040 and beyond.
By Alex Kimani for Oilprice.com.
