Asia/Pacific News
China, Not OPEC, Holds Key to Oil Price Recovery
While much attention has been focused on the output of the Organization of Petroleum Exporting Countries (OPEC) being crucial to an oil price rebound, Stephen King, senior economic advisor for HSBC Holding Plc, says the real driver is China.
King told BloombergBusiness that even if OPEC members cutting production were to happen, it would be unlikely to result in a sustainable recovery due to China's slowing economy.
This despite Venezuela last week warning that crude could drop to the mid-$20s per barrel unless OPEC members take action soon.
King used historical evidence to support his argument, noting that "if you look at the path of oil prices, the surprises to oil prices over the last 15-20 years, they closely correlate to the waxing and waning of the Chinese economy.
"The China slowdown is probably the biggest single influence that is depressing oil and other commodity prices; it's not just a supply-side story."
King added that traditionally OPEC has never overly influenced price recoveries during times of waning demand, and he pointed to Saudi Arabia slashing output during the mid to late 1980s as a prime example.
"Prices didn't go up; this is a more profound story," he said.
Economists surveyed by Bloomberg predict that China's economy will grow by 6.5 percent in 2016, compared to its 9 percent growth during the height of the global financial crisis in 2009.
A recent leaked internal OPEC report shows that the organization expects crude prices to remain under pressure through to 2019,
