China is one of the largest oil importers in the world. With a population of over a billion people, demand for oil is more than ever a pressing matter for the Chinese. According to the China National Petroleum Corporation, oil demand is set to rise by 3.5% to 740 million tons this year.
According to commodity market indexes, oil futures moved higher this early Tuesday, after China delivered an interest rate cut amid concerns over the demand picture from the world’s second-largest crude importer.
The People’s Bank of China (PBOC) cut both its short-and long-term benchmark lending rates by 10 basis points in an effort to support the nation’s slowing economic recovery. The move came after the PBOC last week reduced two key policy rates by 10 basis points each. The Chinese government met last week to discuss measures to spur growth in the economy, and several major banks have cut their 2023 economic growth forecasts for China amid concerns its post-COVID recovery is faltering. As we know, higher interest rates reduce appetite for spending and can drive down oil demand. Thus, a cut in interest rates seemed inevitable in order to boost oil demand for the Chinese.
Crude oil prices rose last week, following back-to-back weekly declines, after finding support in Thursday’s session when the Wall Street Journal reported that Chinese authorities were preparing a range of aggressive economic stimulus measures.
The interest rate cut is good news for Nigeria. Indeed, differentials for some grades of Nigerian crude oil rose last week while Chinese refiners stepped up purchases of crude from other West African exporters. According to Asian Oil & Gas, at least around 35 cargoes of Nigerian crude for loading in June and July have yet to find a buyer. Now it seems that China could be that buyer. As interest rates have been cut, it is much easier for people to afford oil, which will lead to a price surge. Thus, this is the perfect time for Nigeria to increase its revenue from oil exports, and China is no small oil importer.
Moreover, Asian Oil & Gas stated that the expected release of August export plans beginning next week and the healthy overhang of supplies from previous months could put the differentials down.
Four years ago, China made a massive investment in the Nigerian oil and gas market. China invested $16 billion to help Nigeria meet its production targets. Based on this investment, experts predicted that up to 80% of China’s crude oil supply will be imported by 2030. This cut in interest rates in China will surely reinforce Nigeria's crude production for the remainder of the year and consolidate its position as Africa's largest exporter of crude oil.