Over the last year oil prices have fallen by 55% with the price of a barrel of oil around the US$48 – see graph. China is the world’s second largest oil consumer (behind the United States) and largest net importer and is set to benefit from lower oil prices as consumers have more disposable income. Firms can also take advantage by reducing costs and boosting profits.
Since 1995 China’s oil consumption has been driven by the country’s rapid rate of growth especially in the manufacturing sector. By 2002 China had overtaken Japan as the second largest oil consumer. However oil’s share of China’s primary energy consumption has declined since this time – from 23% in 2002 to 18% in 2013 – as other energy sources have grown more rapidly. For most developed economies oil makes up approximately 37% of energy needs. China is still quite reliant on coal for around 70% of the country’s energy needs – see graph.
Last year China imported oil to the value of US$228bn which equates to 19% of total imports and 2.5% of GDP. With the lower oil prices there will be a reduction in money leaving the Chinese economy which should boost more domestic consumption.