Singapore’s Oil Party Spoiled by Falling Prices and China Gloom

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(Bloomberg) — The oil party isn’t over yet — but for the top traders and executives who gathered for talks and cocktails on rooftops in Singapore this week, the euphoria that came with the huge profits of recent years is fast fading.

China’s economic slowdown, structural shifts in the global energy mix, and the prospect of increased crude supplies are weighing on refiners and producers. Processing margins have declined. Traders are no less pessimistic, as the disruptions caused by the pandemic and the months following Russia’s invasion of Ukraine — once-in-a-generation events — have been replaced by low volatility.

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The thousands of oil executives, hedge funds and investors gathering for the Asia Pacific Petroleum Conference will face a grim reality that is already forcing Wall Street analysts to revise downward price and demand forecasts. Global oil prices have erased all of the gains they made this year in recent weeks. OPEC and its allies have been forced to delay a supply boost that could have pushed the market into surplus.

Sentiment is decidedly bearish, absent a return to the geopolitical uncertainty and trading frenzy of the years when Donald Trump was in the White House, said Warren Patterson, head of commodity strategy at ING Group in Singapore. “It would take Trump to shake things up again to add that kind of excitement and turmoil to the market,” he said.

Of all the gloomy topics at Asia’s biggest oil gathering this year, the hardest to avoid will be China — and the question of whether cooling consumption is masking a more permanent decline in fossil fuel use as clean energy takes hold.

Beijing’s economic woes are deepening, with indicators repeatedly warning about demand in the world’s largest importer of crude, which until recently was a major source of global crude growth. Factory activity contracted for a fourth straight month in August, while credit data was dismal and the labor market is bleak. Economists now expect China to miss its growth target of around 5% this year.

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Traders who had expected a stimulus-led recovery have had to revise their forecasts repeatedly, with the rebound initially pushed back to early this year and now to 2025.

Even so, China is likely to face a new energy normal. Commodity trader Trafgura is among those suggesting that the country’s gasoline demand may have already peaked due to the rapid growth of electric vehicles, while high-speed rail travel and LNG-powered trucks are reducing appetite for jet fuel and diesel. That, along with falling consumer confidence, contributed to a year-on-year decline in crude imports from January to July — a phenomenon previously seen only during the height of Covid-19.

The other cloud hanging over the Singapore meeting is OPEC and its allies and what comes next — even after the group ignored Libyan production outages and delayed additional supplies for two months — a move that was not enough to offset the sharp price losses.

Since OPEC+ began cutting output in 2020, some of the group’s traditional suppliers have lost ground in China, where refiners have increased imports of restricted crude, using networks the United States can’t access. India has turned to lesser-known entities to broker deals.

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While Saudi Arabia has invested more in Chinese refineries, securing some downstream demand, it’s unclear whether that will be enough to halt the decline. Lower margins are limiting refiners’ ability to pay for imports, sending utilization rates in China’s private refining sector to near 50% or lower in recent weeks. Meanwhile, state-owned refiners are considering cutting volumes in an anti-season move.

The one clear winner next week is the city-state of Singapore. From its skyscrapers, oil executives will watch hundreds of ships queue off the coast for a chance to refuel, a reminder that Singapore is one of the world’s busiest bunkering hubs, as well as a major financial center.

Since Houthi rebel attacks in the Red Sea began last year, the port of Singapore has seen a surge in bunker fuel sales and transshipment activity, as ships ranging from container carriers to supertankers circumnavigate the African continent, bypassing locations such as Fujairah in favor of Southeast Asia.

The trading community that flourished with the port is still expanding. Even the emergence of Dubai as an attractive alternative for many companies—a financial hub where companies dealing with Iranian and Russian trade can easily set up and dissolve—has not yet dented the island nation’s appeal.

Perhaps the subject of uncomfortable debate, between drinks and presentations, is whether China’s economic slowdown can continue.

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