Goldman Sachs expects that high oil prices will limit the growth of China's oil imports and prevent further price spikes. According to the bank, if crude oil prices remain high, China's oil imports are likely to remain weak in the coming months, which could prevent further price increases.
Forecast for China's Oil Imports
The bank stated in a note from its analysts, including Yulia Zhestkova Grigsby and Dan Struyven, that China's oil imports in the fourth quarter of 2023 will increase "only moderately" by about 600,000 barrels per day compared to the previous three months. While the market sees a significant improvement in China's purchases as a potential driver of "substantially higher oil prices," this scenario seems unlikely.
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Brent oil has increased by about 36% since the start of the U.S.-Iran war in late February due to disruptions in the Strait of Hormuz, but the slowdown in China's imports has helped prevent sharper increases. Goldman Sachs also noted that China's recent trend of distancing itself from Russian and Iranian oil and leaning towards non-sanctioned sources has likely supported global benchmarks.
Impact on Oil Prices
Estimates suggest that although China's imports in the fourth quarter will be higher than in the previous three months, they will still likely be 3 million barrels per day lower than the same period last year. Goldman Sachs estimated that a change of 1 million barrels per day in China's net crude oil imports, sustained over six months, would change the fair value of Brent by about $4 per barrel.
The bank also stated that if China's crude oil purchases remain unchanged overall and the Middle East conflict does not escalate, Brent prices may slightly decrease, as the market has likely factored in a "meaningful" rebound in China's imports.
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