Oil: China's Demand Peak Reshapes Market Balance – Commerzbank

Commerzbank analyst Carsten Fritsch's latest view holds that China's oil demand hitting its peak is fundamentally changing the supply-demand balance of the global oil market. Despite severe disruptions to tanker traffic in the Strait of Hormuz, weaker-than-expected U.S. sanctions on Iran continue to exert further downward pressure on oil prices.

**Structural Shift on the Demand Side**

As the world's largest crude oil importer, the shift in China's demand growth trajectory has far-reaching implications for the market. Market analysis shows that demand from emerging economies led by China was a key factor supporting oil prices near $90 per barrel at the start of the year. However, as China's economic recovery has fallen short of expectations, demand growth momentum has weakened, and the market's earlier concerns over supply gaps are gradually giving way to worries about oversupply.

**Compounding Pressure on the Supply Side**

While demand is slowing structurally, supply from non-OPEC producers is steadily increasing. According to earlier forecasts by Swiss Pictet Wealth Management, non-OPEC+ production will gradually rise in 2024 and peak by year-end, at which point the global oil supply-demand balance will shift to oversupply. Currently, weaker-than-expected U.S. sanctions on Iran mean more Iranian crude may remain on the market, further intensifying supply-side pressure and offsetting the supply disruption risk premium from geopolitical tensions in the Strait of Hormuz.

**Oil Price Outlook Under Pressure**

Taken together, the dual pressures of peaking demand and rising supply are dominating oil price trends. The market had previously expected that a slight oversupply could push Brent crude prices down to $80 per barrel by the end of 2024. Now, with the structural factor of China's demand peak emerging, the downside risks to oil prices may be more pronounced than previously anticipated. Commerzbank's assessment further reinforces the market's cautious expectations for oil prices over the medium term.