China began the third quarter with weaker-than-expected key economic indicators, raising additional concerns about the health of its economy and its demand for crude oil in the coming months.
Retail sales increased by just 0.6% in July from a year earlier, down from 1% annual growth in June, official Chinese data showed on Monday. Retail sales last month came in well below the analyst estimate of 1.5% growth in a Reuters poll, despite summer tourism spending.
Growth in industrial output also fell short of expectations, with a 4.5% increase in July versus 4.8% expected growth, and also slowing from a 5.3% rise in June.
The start of the third quarter in July added concerns about the state of the Chinese economy, which had expanded in the second quarter by the smallest GDP growth since 2022. The Chinese economy grew by only 4.3% between April and June. The weakness continued in July, with most economic indicators undershooting analyst expectations.
The slowdown in China’s economic growth doesn’t bode well for Chinese crude oil demand going forward.
China, however, is a major opportunistic buyer of crude, taking advantage of low oil prices to stockpile reserves, which allows it to reduce crude oil imports if oil prices spike or if supply is choked, as it has been in recent months due to the Middle East crisis.
Total Chinese crude oil imports rebounded in July from the decade-low in June, with a 22% jump from June to an average of 8.45 million barrels per day (bpd) last month, customs data showed earlier this month.
Thanks to this substantial supply cushion, China became instrumental in keeping a cap on global oil prices despite the turmoil in the Middle East, as the biggest importer of the commodity in the world could hit pause on imports for a while. However, analysts have warned that at some point China will return to international markets, and that would not be a good day for oil bears.
By Charles Kennedy for Oilprice.com
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