China's economy is facing a challenging future, but a market 'bust' is unlikely.

• The world's oil demand has been driven by China, but its tepid demand has caused U.S. crude prices to drop to their lowest in over a year due to an oversupplied market.
• If China's demand for crude oil remains weak, Goldman Sachs predicts that crude prices could drop to the low $60s per barrel by 2025 and 2026. In the event of a moderate U.S. recession, the price could even fall to $50 a barrel.

In Singapore last week, at the annual Asia Pacific Petroleum Conference, the primary concern of oil traders and analysts was the decline in oil prices and its future direction.

The International Energy Agency's most recent September report shows that China, the main driver of global oil demand, has been slowing down, with year-on-year growth in the first half of 2024 reaching only 800,000 barrels per day, the slowest growth since 2020.

The primary cause of the decline is a "slowing China," with consumption decreasing for the fourth consecutive month in July compared to the previous year. China is the world's largest importer of oil and the second-largest consumer, accounting for 15% of global oil consumption.

The low demand for U.S. crude, coupled with an oversupply, resulted in its lowest price in over a year earlier this month. Despite being key OPEC+ members, Iraq and Kazakhstan have exceeded their monthly production quotas under the oil group's agreement.

The alliance has delayed its plans to increase output by 180,000 barrels per day in October as part of a broader program to return 2.2 million barrels per day to the market over the coming months.

The focus of Asia's largest oil conference was on the decline of oil prices, with the main concern being the extent of the drop in the coming years.

Oil at $50

Daan Struyven, Co-Head of Global Commodities Research at Goldman Sachs, predicted that crude oil prices could drop to the low $60s per barrel within the next two years if China's demand remained weak. He also stated that a steeper decline was not entirely out of the question.

During the conference, Struyven stated that in a moderate U.S. recession, Brent could drop to approximately $50 per barrel. However, he expressed a positive outlook on the global economy.

Despite high interest rates aimed at controlling inflation, the U.S. economy has remained strong, but growth has slowed and recessionary concerns have arisen. However, a survey shows that Americans believe the U.S. is already in a recession.

According to Torbjörn Törnqvist, CEO of Gunvor, commodities trading house, "Things are slowing down. While it may not necessarily mean a bust, I believe it could be stagnant, which is bad enough for oil."

Concerns about weak demand in China were raised by Trafigura, a trading giant, along with the global oil consumption linked to it.

Ben Luckock, Trafigura's global head of oil, stated that it is challenging to consider anything other than China when contemplating the supply and demand equilibrium for the upcoming year, according to CNBC.

He said he believed we would likely enter the 60s in the near future. Meanwhile, Brent is currently trading at $73.09 per barrel, and U.S. West Texas Intermediate is at $70.57 per barrel.

Despite ongoing tensions in the Middle East and the Russia-Ukraine conflict, oil prices have decreased.

Luckock cautioned against being overly pessimistic, stating that there are numerous events that could disrupt one's day.

He cautioned against betting everything on the table being short.

Can India step in?

Some are looking for alternative oil demand drivers due to China's slowdown, with India being considered a potential candidate. India is the third largest consumer of oil, consuming approximately 5 million barrels of oil per day, which accounts for 5% of the world's oil consumption.

In 2024, India is projected to become the leader in oil demand growth, surpassing China with an estimated increase of 200,000 barrels per day, according to IEA's projections.

In the near future, India aims to surpass Japan and Germany as the world's third-largest economy, with its rapid growth as a large economy.

Rongsheng Petrochemical's general manager, Hong-Bing Chen, stated that he anticipates increased growth and greater consumption of gasoline and gas oil in India.

Others experts were more circumspect.

Vandana Hari, founder and CEO of Vanda Insights, stated that Indian demand accounts for one-third of Chinese demand. She believes that there will not be another China in terms of global oil demand growth in the future.

Facts Global Energy chairman Fereidun Fesharaki stated that India's growth rate will remain consistent and continue into the mid 2040s, but it will not match the size and magnitude of China's growth.