While China exacerbated the upswing in the commodity super-cycle, it indirectly sowed the seeds of the bust. Expectations that immense growth in China’s demand for raw materials would continue in perpetuity, coupled with the prevailing low-interest-rate environment, fostered a wave of capacity increases across the commodity sector. The global economy is now grappling with deflationary forces stemming from this state of oversupply. Deutsche Bank AG analyst Michael Hsueh brings some sobering news on this front for oil bulls: Projected Chinese demand growth is still too high. China has accounted for over one-third of the growth in global oil demand since the dawn of this millennium, the analyst noted, a trend that the likes of the Energy Information Administration, the International Energy Agency, and BP PLC still believe will continue through 2035.
While demand for oil in the world’s second-largest economy responded in textbook fashion to low crude prices in 2015, the medium-term assumptions by these major associations and companies call for the Chinese consumer to guzzle gas at a rate that is probably unattainable, according to Hsueh. “We believe that oil demand growth from the passenger vehicle sector, which has made up 66 percent of Chinese total oil demand growth since 2010, may slow in the medium term and then begin to decline by 2024,” he wrote. “This casts doubt over the capacity for continued long-term oil demand growth at current trend rates in China, and by extension, the world.”