Oil demand projections will fluctuate wildly with each iteration of events in China. Price volatility is sure to follow.
As the protests in China continue, commodity markets will be will be watching closely for any sign of escalation or de-escalation in order to ascertain the implications for China’s economic health and, by extension, demand for oil and other commodities.
COVID-zero policy lockdowns have hit the Chinese economy hard, necessitating reductions in China’s projected economic growth by an increasing number of economists. China is by far the world’s number one importer of crude oil, and OPEC members account for over half of all crude oil imported by China.
Expected Chinese oil demand will factor heavily into OPEC’s upcoming early December meeting at which the group will determine whether or not to cut oil production further in the wake of a weakening global economy. If protests in China spread, it is likely that demand projections for oil will be reduced, which could prompt another production cut announcement by the OPEC+ consortium. OPEC’s petro-economists are among the world’s best, and they are certainly already factoring in a global economic slowdown driven by central bank tightening and the European manufacturing slowdown.
China imports a host of other commodities besides oil, with iron ore, gold, soybeans, and copper rounding out the top five commodity imports by China in dollar value terms. All of these things could be affected if the unrest in China spreads – or if it suddenly stops due to a policy shift such as an end to COVID-zero restrictions.
There is no way to predict how things will play out over time, but it is a pretty safe bet that price volatility in the commodity markets will increase no matter which way things go in China. An escalation of unrest would most likely be detrimental to oil prices and other commodities, but the quelling of the unrest by force or policy change could potentially be supportive to prices. As news flows out of China the markets will react accordingly. Short-term and possibly severe price fluctuations should be expected until China gets its house in order.