China’s Auto Sales Rise 8.8%: The Impact on Crude Oil Tankers

Automobile sales are a key indicator that investors should watch when assessing the health of China’s economy. China’s (FXI) auto sales reached ~1.9 million in February 2017 from ~1.6 million in February 2016. That’s a 22.0% rise year-over-year.

China’s (MCHI) car sales in the first two months of 2017 should be viewed together, since sales are traditionally distorted by the effect of the Lunar New Year holiday, which varies between January and February.

China’s (MCHI) auto sales for the first two months of 2017 were 8.8% higher than sales for the same period in 2016. The growth rate in 2016 was 14.0%, the fastest growth in the past three years.

As the tax incentive for car purchases rolled back, it was initially predicted that the consumer demand for automobiles would suffer. But the results proved these predictions wrong. A more clear picture of the market will be seen in the coming months.

Because automobiles use a large amount of oil, a significant rise in car sales often leads to higher oil consumption and imports. Higher oil imports and consumption could support tanker demand and rates. Of China’s total oil demand, ~49.0% comes from road and air transportation.

Higher auto sales translate to higher oil demand, whereas lower auto sales are often negative for oil consumption, imports, and shipments. Lower oil consumption hurts tanker companies such as Frontline (FRO), Teekay Tankers (TNK), Tsakos Energy Navigation (TNP), Nordic American Tankers (NAT), DHT Holdings (DHT), Gener8 Maritime (GNRT), Navios Maritime Midstream Partners (NAP), and Euronav (EURN).

For more analysis on the oil industry, check out Market Realist’s Crude Tankers page.