The energy sector has experienced an intensified selloff following the Federal Reserve’s decision last week to temper expectations of significant interest rate cuts. On Wednesday, the central bank reduced rates by 25 basis points, as anticipated, but indicated a slower pace of cuts ahead, citing rising inflation concerns. Fed Chair Jerome Powell emphasized that inflation was a key factor in the decision to forecast fewer rate reductions in 2025. As a result, oil and gas stocks have dropped nearly 15% over the past month, with energy markets struggling to find clear direction.
Oil prices, in particular, have been stuck in a narrow range, hovering between $68 and $72 per barrel for WTI, and $71 to $75 per barrel for Brent. David Morrison, senior market analyst at Trade Nation, noted, “It feels as if oil prices must break out of their current, tight range. But it also feels as if they need a catalyst for this to happen.”
A stronger U.S. dollar is also weighing on oil prices. The U.S. dollar index has risen by 8% in the last three months, with the rally accelerating after Donald Trump’s presidential election win. Investor expectations of dollar-friendly policies, such as tax cuts and tariffs aimed at boosting U.S. manufacturing, have supported the dollar. Additionally, the Fed’s smaller rate cuts are seen as favorable for the dollar’s strength.
Meanwhile, China’s economic slowdown has added to the pressure on oil prices. The country’s economy grew by just 4.6% in the third quarter, marking its slowest pace since early last year. This deceleration has led to concerns about future oil demand. Two weeks ago, Beijing unveiled its first major monetary policy easing since 2010, signaling efforts to stimulate economic growth.
For the past two decades, China has been the primary driver of global oil demand growth, fueled by its rapid economic expansion. However, the country’s growth momentum appears to be fading, with analysts warning that China’s peak growth days may be over. Factors such as a downturn in the property sector, which once contributed 20-25% of GDP, are contributing to the slowdown. Housing starts have plunged by 57%, and the sector is expected to remain significantly smaller in the coming decade.
India Poised to Lead Global Oil Demand Growth
As China’s role in global oil markets diminishes, India is stepping up to take its place. Emma Richards, a senior analyst at Fitch Solutions, told The Times of India that China’s share of emerging market oil demand growth will shrink from nearly 50% to just 15% in the next decade. Meanwhile, India’s share is expected to double to 24%.
China’s rapidly growing electric vehicle (EV) sector is expected to accelerate the decline in oil demand. In 2022, China sold 6.1 million EVs, compared to just 48,000 in India. This shift away from gasoline-powered vehicles is expected to lower oil demand significantly. Sinopec, China’s state-owned oil giant, has revised its oil demand forecasts, predicting that peak gasoline demand has already passed due to the rise of EVs.
In contrast, India’s energy transition is less aggressive. The country’s coal minister, Pralhad Joshi, stated that coal will remain a critical part of India’s energy mix until at least 2040, due to its affordability and the country’s ongoing demand for energy. “No transition away from coal is happening in the foreseeable future,” Joshi said, affirming that coal will continue to play a major role in India’s energy strategy.
While China’s shift toward clean energy may curb its oil consumption, India’s reliance on coal and slower adoption of EVs suggest that it will drive future oil demand growth in emerging markets. As a result, India is poised to become a key player in global oil markets in the coming decades.
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