Analysts at the Financial Times Commodities Asia Summit forecast a significant shift in global oil demand dynamics for 2026, with India expected to overtake China as the leading source of demand growth. This change is attributed to China's languishing economic growth, which is projected to dampen its oil consumption.

China's Economic and Policy Outlook

A moderate government stimulus is anticipated in March 2025, aimed at boosting economic activity in the latter half of 2026. However, current stock market optimism is seen as inconsistent with actual economic activity levels. The muted economy is expected to be a drag on global growth in early 2026 and contribute to a forecasted global oil glut of approximately 4 million barrels per day. This economic slowdown will negatively impact China's petrochemical and refinery industry, leading to chronic low capacity utilization rates.

Industry Response and Export Dynamics

Faced with low utilization, Chinese refiners are expected to change their product mix. A key factor for the global market is whether the Chinese government will allow increased exports of oil products and petrochemicals to release its huge and expanding refining capacity. An increase in the export of Chinese oil components is considered likely in the near future.

Demand Reduction Factors

Analysts agreed that Chinese import demand is being diminished by a combination of three factors:

• Increased domestic supply.
• The growth of electrification.
• The adoption of alternative fuels.

Electrification and alternative fuels alone are projected to reduce oil product use in China by up to 20% by 2030.

Strategic Stockpiling and Buying Behavior

The slowdown in direct demand has been partially counterbalanced by China's strategic stockpiling. Crude oil stockpiles have reached an estimated 1 million barrels per day. This stockpiling, a longstanding cornerstone of energy security, increases when prices are low due to price sensitivity. The buying behavior is also driven by concerns over dollar debasement and a national security aim to diversify state assets.

Impact of Russian Oil Flows

China's status as the largest buyer of Russian oil (with India as the largest seaborne buyer) further reduces its demand for oil from other import sources. Analysts believe Russian oil will continue to find its way to Asian markets despite sanctions, as the significant price discount is too tempting to resist, though this may not happen immediately due to the optics of sanction compliance.

Market Pricing and Long-Term View

For market pricing, the first half of 2026 is expected to see oil in the high US$50s per barrel range, before prices recover to around US$65 per barrel due to geopolitical premiums. Despite the current oversupply and lower demand growth, the underlying outlook includes potentially lower market volatility, a more fundamentals-driven market, less trade friction, and lower freight rates. Observers are optimistic that commodity flows will self-correct in the long term, with no expected long-term repercussions on market fundamentals.