China Oil Demand Continues To Slump Amid Auto Sales Tumble; Fears Spark Over Currency Devaluation Impact

It's been a challenging time for China as its oil demand continues to slump amid auto sales tumble and the weakening yuan. Now, fears over currency devaluation impact and currency war have intensified in the nation.

In the second half of this year, China could drown its economic growth further as the nation's oil demand and vehicle sales continuously drop. According to Reuters, it has been the fourth consecutive monthly decline and the biggest since January.

China's daily implied oil demand is the sum of domestic refinery throughput and net imports of refined products, not counting adjustments for inventory changes. And one reason for the oil decline is the nation's weakening yuan. However, the falling purchasing power of the currency might only slow strategic reserve stockpiling of crude oil and not underlying consumption.

The latest output and net import figures set China's implied oil demand in the first seven months of 2015 at 10.39 mln bpd, unevenly increasing by 4.6 percent from the same period last year. The year-to-date growth is still running ahead of the International Energy Agency's most recent prediction for Chinese demand this year at 3.2 percent, which is attributed on gasoline, jet fuel and liquefied petroleum gas (LPG) consumption gains, The Economic Times reported. The agency also said it is expecting oil demand growth to slow in the second half amid economic headwinds.

Meanwhile, China devalued the yuan for a second time following Tuesday's record reduction in the daily reference rate. The devaluation set up the currency for its biggest two-day loss in 21 years and making imports of dollar-denominated commodities pricier.

"While devaluing the yuan will make dollar purchases more expensive, it's important to place that move in the broader context of the drop in crude," London-based Energy Aspects analyst Virendra Chauhan said. "If you think about where we were trading last year, you're talking about a 50 percent reduction in crude, and the currency impact is nowhere near that."

As the overabundance from U.S. shale fields and OPEC producers pulled down benchmark oil prices over the past year, China took advantage of the decline and created a strategic petroleum reserve to hoard emergency supplies. Those purchases by the world's second-biggest oil consumer may help reduce an oversupply worldwide, Bloomberg noted.

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