Weaker-than-expected oil flows to Asia have led to some questioning the validity of oil demand forecasts for the year. Imports have indeed been 780,000 bpd lower in January and February than a year ago—yet it has already been an eventful year. Anything might happen yet—including even more bearish things for oil.
The 780,000 bpd figure comes from LSEG Oil Research, as reported by Reuters’ Clyde Russell. The decline put the average daily intake of oil in Asia at 26.17 million barrels. Unsurprisingly, it was China that drove the decline, with its crude imports falling by a sizable 840,000 barrels daily over the first two months of 2025. The total daily average stood at 10.42 million barrels, down from 11.26 million barrels over the first two months of 2024.
The trend chimes in with reports about Chinese refiners slashing their run rates due to the end of cheap Russian crude, as reported last month. The cause of the price rise: the Biden administration’s last sanction package against Russia’s oil industry. The Biden Administration’s farewell sanctions on Russian oil trade and shadow fleet crippled the supply of ESPO crude, which is shipped from the Far Eastern Russian port of Kozmino. ESPO has been a favorite with Chinese refiners, but the scores of oil tankers sanctioned by the U.S. slashed the availability of non-sanctioned tankers to ship the crude to China.
With the cost of procuring ESPO going up, run rates at independent refineries have gone down. However, this might change because Russia has reportedly started to reshuffle tankers to prioritize shipments to China. Aframax tankers that serviced crude exports from Russia’s western ports are now being redirected to the Russian Far East-China route to service the exports of ESPO crude. The above is according to Bloomberg and suggests that it is not demand for oil that is the problem in Asia but rather complications around securing affordable supply.
Indeed, an earlier report by Reuters suggested that Chinese oil imports from Russia—and from Iran—were set for a rebound as the tanker market adjusted to the new challenges. The adjustment involved as many as 11 tankers that haven’t been sanctioned by the U.S. that have recently joined the oil delivery route from Russia to China, including vessels that have previously carried Russian oil to India, according to LSEG data cited by Reuters. That followed a surge in freight rates resulting from the last Biden sanctions against Russia.
This, too, suggests that demand for crude oil in Asia is not really an issue—access to supply is the issue. Indeed, while analysts ponder whether China’s oil demand growth has already peaked, one of the world’s largest energy traders recently predicted that global oil demand will remain at current levels until at least 2040. According to Vitol, long-term oil demand will remain stable at around 105 million barrels daily, even as the drivers behind this growth change. The trading major expects gasoline demand to decline but demand from the petrochemicals industry to rise, offsetting the decline.
Over the shorter term, China will continue to be among the chief drivers of oil demand growth despite the weak start of the year, seeing as the causes of that weak start have nothing to do with organic oil demand. Its contribution to global oil demand growth, however, is going to be smaller, as the pace of demand growth moderates. In the years to 2020, China accounted for some 60% of global oil demand growth, according to the International Energy Agency. This decade, this contribution is seen by the IEA declining to 19%. Yet others in Asia are going to replace China with fast demand growth.
India is expected to account for 25% of global oil demand growth this year, the U.S. Energy Information Agency said in December, estimating the rate of oil demand growth at 330,000 barrels per day. Estimates also say that India’s gas consumption could double by 2040 and triple by 2050. So, with India, forecasters see both a strong 2025 and a strong long-term trend in oil demand growth.
All this suggests that the weak start to the year in Asian imports of crude oil may well be a glitch, driven by the former U.S. administration’s foreign policy rather than any fundamental factor. The new administration, meanwhile, is making an effort to drive demand for oil higher—including by ending the war in Ukraine and clearing the way for freer Russian oil exports once U.S. sanctions are lifted.
Should this scenario play out, it is quite likely that bearish oil demand forecasts will change significantly, as they tend to do when fundamentals point to stronger, not weaker demand ahead. After all, even the IEA has had to repeatedly adjust its forecast numbers because demand kept surprising it to the upside.
By Irina Slav for Oilprice.com
