Plunging oil prices have sent shockwaves around the world, threatening to topple governments and bankrupt businesses even while U.S. consumers celebrate cheap gasoline. Yet while rising supply has been largely blamed for the precipitous price fall, China’s lower demand growth and its long-term implications for the global economy have been largely ignored. Is Beijing a winner or loser from cheap oil?
On January 7, U.S. benchmark oil prices dipped below $48 a barrel, the lowest since April 2009 and half the level of just five months ago. The slump follows November’s decision by the Organization of Petroleum Exporting Countries (OPEC) not to curb production, despite surging U.S. shale supply and weakening Asian and European demand.China’s role in oil’s rise and fall reflects its re-emergence on the world stage. During the past decade, the communist giant’s industrialization spurt saw it become the world’s second-biggest economy and top consumer of resources such as iron ore and coal, as well as the world’s largest net oil importer.
According to Societe Generale, a French multinational banking and financial services company, Beijing’s opening to world trade at the start of the 21st century, signified by its joining of the World Trade Organization in 2001, was responsible for increasing the oil price from around $20 a barrel to $100. During this period, China’s demand grew by the equivalent of Japan and the United Kingdom’s total oil consumption, giving oil markets a similar shot in the arm to that of other commodities.
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