Why China’s car sales are driving global oil demand

China’s car sales are driving oil demand

With refineries cutting production due to the maintenance season, pressure is building on China’s crude oil imports. There’s higher demand for crude tankers. However, stronger automobile sales cushion the industry by driving the oil demand. Rising incomes in China are offsetting the impact of its industrial deceleration, propping up global oil prices, and increasing car ownership. This high demand is keeping the country on track to overtake the U.S. this year and become the top oil importer.

Why China’s car sales are driving global oil demand

Strong May auto sales

According to data from the China Association of Automobile Manufacturers, for the month of May, passenger-vehicle sales in China increased 13.9% to 1.59 million units year-over-year (or YoY) as foreign car manufacturers like General Motors Co. (GM) and Ford Motor Co. (F) continued to gain share from local brands in the world’s largest auto market. The significant growth trend from the previous year suggests continuing positivity in the crude tanker industry.

Both local and foreign players are preparing to expand their market share as consumers advance their purchases because of concern their city might cap the growth in vehicle ownership. This implies a positive sentiment in the oil consumption industry. An increase in number of vehicles would lead to higher fuel demand connected to the direct increase in oil demand. Companies are working to increase market share, which will increase oil demand and benefit the entire crude tanker industry.

Attractive auto sales in 2014

For the first four months of 2014, China added 6.48 million cars to its passenger fleet—an increase of 10% from the same period last year. Industry analysts believe that if China follows the path of Korea and Japan, motor vehicle ownership—which in 2008 stood at just 30%—could reach 600 per 1,000 people by 2030.

There’s a transnational shift of consumers resorting purchasing more vehicles. This benefits crude tankers such as Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), Teekay Tankers Ltd. (TNK), and Frontline Ltd. (FRO).

At the beginning of the year, China’s main car association forecasted growth of 10% in 2014. If this expectation still holds, China’s auto sales should improve in the future.