SINGAPORE (Reuters) – Oil demand from Asia’s biggest importers, China and India, is growing more slowly than expected, exposing weakness in two of the world’s largest economies and eroding a key pillar of global petroleum prices amid trade tensions.
The two countries buy a combined 12 percent of the world’s oil, and their growth has helped drive the recovery in oil prices since 2016.
Yet their shipped imports in July were about half a million barrels per day (bpd) below their Jaunary-June average of 12.4 million bpd, shipping data shows.
That has dragged down demand growth in Asia, despite inflated purchases ahead of U.S. sanctions on Iran and increased imports from Japan and South Korea as they struggle with record-setting heat waves.
Shipping data shows annualized growth in demand from Asia’s five largest oil importers – China, India, Japan, South Korea and Taiwan – fell from more than 3.5 percent in 2016 to around 2 percent so far this year.
“Everything is weakening, but from a pretty elevated level,” said Jeff Brown, president of energy consultancy FGE.
Traders expect growth to slow further as the Iran sanctions take hold, the trade spat between the United States and China escalates, and as Asia’s emerging markets show signs of cooling.
“Any further escalation in the trade conflict between them is clearly an important downside risk and could lead to a further slowdown in oil demand growth for 2019, leading to a downward pressure on oil prices,” said Sushant Gupta, research director at energy consultancy Wood Mackenzie.
Renewed U.S. sanctions against major oil exporter Iran, which from November will target the petroleum sector, are expected to disrupt the market.
Iran’s oil exports peaked at almost 3 million bpd in May this year, but they have since fallen to around 2 million bpd as Asian buyers, including Japan, South Korea and India, began to shun its crude ahead of the sanctions.
For a graphic on top Asian oil importers, click tmsnrt.rs/2KSQY3f