The Chinese stock market meltdown is having far ranging effects outside of China. Reuters reports how stocks and oil fell in price on worries about China as well as the Greek debt crisis.
Equity markets around the world fell on Monday and U.S. oil prices tumbled 6 percent after Greece overwhelmingly voted against conditions for a rescue package and on unprecedented measures in China to staunch massive recent losses in its stock markets.
Beijing introduced unexpected measures over the weekend to staunch a recent 30-percent rout in its stock market since mid-June, which had raised investors’ concerns about the stability of the world’s second-biggest economy.
Crude oil sold for $100 to $120 a barrel from 2011 until the middle of 2014. Today it sells for around $60 a barrel. This is because of decreased demand on one hand and oversupply on the other. The US oil fracking boom has hugely reduced US oil imports and OPEC is not backing off on production. On the demand side Chinese oil consumption was less than 5 million barrels a day until 2002. Today China consumes 10 million barrels a day compared to the USA at 20 million barrels a day. But consumption in China is peaking and will likely fall.
Reduced Chinese Oil Consumption
loomberg Business cites projections by China Petroleum & Chemical Corporation. China’s fuel demand is going to peak and fall.
China’s biggest oil refiner is signaling the nation is headed to its peak in diesel and gasoline consumption far sooner than most Western energy companies and analysts are forecasting.
If correct, the projections by China Petroleum & Chemical Corp., or Sinopec, a state-controlled enterprise with public shareholders in Hong Kong, pose a big challenge to the world’s largest oil companies. They’re counting on demand from China and other developing countries to keep their businesses growing as energy consumption falls in more advanced economies.
Sinopec has offered a view of the country that should serve as a reality check to any oil bull. For diesel, the fuel that most closely tracks economic growth, the peak in China’s demand is just two years away, in 2017.
And these projections were made before the Shanghai stock market went into free fall a month ago. A damaged Chinese economy will use less oil and prices may well fall even farther unless producers rein in production.
End of the Chinese Economic Miracle?
Business Insider looks at China’s economic problems and decides that everyone who does business with China will feel the effects.
China’s economic slowdown isn’t just bad for China. It’s bad for everyone who trades with China. GDP growth has slowed from 10.4% annually in 2011 to 7.4% last year. According to the World Bank, this number should continue to slide, going below 7% by 2017.
Joseph P. Quinlan, a strategist for US Trust, wrote about the importance of Chinese importing. “Import demand in China has been simply staggering since 2000, with imports rising nearly nine-fold between 2000 and 2014, helping to boost demand and real growth in Southeast Asia, Africa, South America, and the Middle East, among other places,” Quinlan said.
China has been gobbling up commodities in its drive to develop its economy over the past two decades, and it has become the key trade partner for a diverse group of nations.
The relationships go beyond China and oil stocks. From Africa to Latin America to Australia raw material producers will be hurt as China cuts back on imports. Suppliers of high end manufacturing equipment from countries like Germany and Japan will also be hurt as the Chinese economy slows. If the stock market in China goes from bad to worse, and takes the real estate market with it, the bad results will be multiplied.