- China is the biggest wild card on the demand side in global oil markets. Market expectations have shifted 180 degrees with respect to China’s post-zero covid economic outlook.
- When China abandoned that policy, many market observers expected its economy to boom and oil demand would roar back with vengeance accordingly. Goldman Sachs, for instance, predicted that the Chinese reopening would increase the oil price by 15 US$/bbl this year.
- These expectations, however, have not materialised. To date, the Chinese economy does not convey strong fundamentals.
- The Chinese economy is export-oriented and is, thus, exposed to the health of the global economy. Additionally, domestic consumption has been weak.
- The growing commercial ties between China and Saudi Arabia are part of a natural evolution in a relationship that brings the biggest supply growth centre for oil in the world with its biggest demand engine.
- That relationship is supporting a greater use of Yuan, the Chinese local currency, though the global oil trade will continue to be dominated by US dollar transactions.
- Apart from the commercial interests, both countries share similar views on issues such as climate change. It is East talking to East.