Publications: Notes at the Margin

Bifurcation of the World Oil Market; China Holds the Oil. Will It Buy More? (July 21, 2025)

 

The oil-exporting nations are boosting production. OPEC forecasters see a need for increased output to meet projected consumption and refill inventories. Other analysts seem to agree. The problem, however, is that the global market has bifurcated. Companies in one country, China, are aggressively building inventories on government orders. Firms elsewhere are striving to shed stocks out of a fear that oil-exporting countries cannot or will not maintain market stability. Oil prices will stay at current levels if the Chinese buy enough, and fall otherwise.

 

Bifurcation simply means “the division of something into two branches or parts.” The adjective form, bifurcated, applies to today’s global oil market, where two markets now exist: China and the rest of the world. No one, to our knowledge, sees this as a problem. We assert, though, that Chinese buying has held crude prices above $60 per barrel.

 

Market watchers should be more concerned than they are because China’s economic slowdown, combined with its strong desire to move off oil, could bring oil prices down. Additional downward pressure will come from the global economic chaos created by the United States’ erratic trade policies, which threaten to depress growth and oil use in the European Union, Japan, and South Korea, as well as China.

 

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