Beyond the difficulties of global suppliers working against OPEC and happily making up for the product shortfall which the cartel is attempting there remains the problem of falling demand. Across the world the slowing economies of nations are using less oil products adding to the persistent supply glut which currently plagues the market.

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According to recent data, China which recently momentarily overtook the U.S. as the world’s largest oil importer, saw oil imports decline from record highs.  The average 8.4 million bpd, which the world’s most populous nation purchased in April, represents a decrease of nearly 9% from the previous month. This could be partially due to falling demand for Chinese oil products which saw net exports plunge by nearly half from their levels in March to 1.01 million tons.

This dramatic decrease can be partially attributed to an increase in seasonal refining maintenance and independent processors called teapots reaching their buying quotas. Exports of teapot refined fuel products were restricted by the Chinese government for the second straight quarter. This suggests that even when seasonal maintenance is finished there may be a glut of finished product awaiting sale. However, a deeper look into Chinese oil inventories reveals a larger problem.

Crude inventory levels at major ports in the Shandong province of China showed inventory levels were at a 9 month high last week. This suggest Chinese buyers are simply buying low in order to hedge against future price increases. With crude inventories being ample and a glut of refined products awaiting sale, there is little reason to expect a resurgence in Chinese demand in the near future.

Worldwide suppliers ramping up production, combined with dwindling demand across the globe suggest OPEC’s plan of simply extending their current level of cuts will not be nearly enough to deplete current glut of products. Simply adding up the projected increases in the United States, Libya and Nigeria essentially balances out the planned cuts without even considering the question of falling demand.

Still, cooperation between the Saudis and Russia makes for good headlines and the markets will need some time to digest the math behind market supply levels. This means it is reasonable to expect a short term bump in the price of oil leading up to the OPEC meeting in Vienna. However, for a real and permanent increase in the price of oil to occur more than strong words will be needed.