China’s Potential Influence on Petrol Prices: Comparing 2020, and 2022
Author: George Hahn
Editors: Ava Holtzman, Joshua Blaustein, and Mike Wu
China’s Energy Prices – Key indicator
Throughout the development of the global economy, supply and demand of goods can often be characterized as countervailing. Prices are often determined by the proportion between production and consumption rather than the numerical difference between the two forces. This framing can be useful when determining the overall costs to producers and consumers alike when focusing on key commodities like petroleum. China’s covid era has demonstrated the relationship between supply and demand in the context of international and domestic policy. China’s original lockdown in 2020 primarily demonstrated the role of consumption, whereas the 2022 COVID emergence crisis highlighted the potential role of production in the global petroleum market.
China’s demand side pressures:
Petroleum prices are one of the most critical indicators of a country’s overall economic health. It plays a pivotal role in almost all aspects in economic productions; transportation, light manufacturing, heavy industries, and even housing. Energy surpluses typically indicate lower prices for producers and consumers alike. The supply of the commodity was abundant early during COVID-19’s crisis in 2020; however, such abundance was paired with an overall lack of demand where the overall market contracted. Oil used initially did not catch up with consumption which led to plunging crude oil prices. The same price shocks foreshadowed China’s impact on oil prices during its covid lockdown crisis during the latter half of 2022. When looking at the full spectrum of COVID’s economic effects from 2020 to 2023, the similarities, and differences between the United States and China are multifaceted in both domestic and international markets. The two countries are arguably the most crucial components in global demand, suggested by their scale of consumption relative to the rest of the world. The United States represented a staggering 20.3% of the world’s oil consumption, while China consumed about 13.2%. The two countries' oil consumption combined would make up roughly one third of the entire world's consumed petroleum. In return, the two economies levies an enormous weight on the commodity’s prices.
International Markets Matter:
International oil prices are often determined by consumption patterns. Americans consume the largest share of oil relative to the rest of the world; however, it is important to note that the United States produces more petroleum in domestic markets relative to its overall consumption of the commodity relative to all other economies. The United States is the leading producer of crude oil at 14.5% of the world’s market, with a daily deficit of around 5 million barrels of oil per day. China consumes a larger portion of its overall access to the oil market, in which it consumes about 8 million barrels more than it produces. China imports a disproportionately large volume of petroleum relative to the United States despite having a lower rate of consumption. Beijing’s disproportionate dependence on the global oil supply suggests more influence on the commodity’s demand. China has traditionally served as one of the largest oil consumers, limiting the overall oil supply and allowing for stable prices.
Why Oil Prices Have Not Skyrocketed
Oil prices have remained relatively stable despite China’s economic slowdown during its COVID lockdown crisis in 2022. Although it is important to note changes in China’s weight in the commodity’s market, it is important to identify potential counteracting forces. The crisis was limited in scope, and foreign actors played a role in raising the price of oil. Although it is important to note the weight of China’s domestic economic forces and its domino effects across the world, the downward pressures on oil prices would have been weakened in the absence of other major economies implementing similar policies. The COVID crisis in 2020 was characterized by a pre-endemic attempt to contain the virus through collective action between states. In the absence of the same precedent, the lockdown in China was a purely domestic response to reduce its own population’s risk of the virus. As one of the only major economies to implement some form of lockdown measure in 2022, China’s slowdown had a relatively small impact on oil prices relative to 2020.
Regarding international actors, oil-producing states played a role in counteracting the downward pressures on oil prices prompted by China’s economic slowdown. Many OPEC member states reduced their overall volume in production, leading to relatively stable prices in 2022. Saudi Arabia, for instance, cut around 2 million barrels of oil per day in 2022. Being one of the most prolific suppliers of crude oil to the world economy, it offset many of the downward pressures in commodity prices induced by China’s lockdown.
Conclusion:
Major industrial economies often have an influence on the prices of many of the inflexible goods they rely on. They often consume the majority of commodities, acting as a proverbial sink to supply. In the context of the energy market in the 21st century, Asia has become the world's largest energy consumer. The continent boasted a growing manufacturing base paired with raised living standards, increasing the demand for energy. Due to the prevalence of fossil fuels, petroleum has become an important strategic resource in Asia’s lifeline to energy. Like many commodities, the resource is subject to consumption pressures from large economies. China’s economic weight is considerable to the point that it has a staggering weight on oil. Their consumption of the commodity is one of the highest in the world. Since they export the vast majority of the commodity, demand is reliant on the health of their economy. Although it is important to consider the impact of China’s domestic economy on international markets, it is critical to consider potential countervailing forces. by comparing the COVID crisis between 2020 and 2022. The environment in which China’s economy slowed is emblematic of how domestic and international forces can affect prices. There were upward pressures on the price of oil both in the context of OPEC price manipulation and the country’s relative isolation in lockdown policy.
