Oil traders focused on China’s crude demand may be missing an underappreciated problem elsewhere. That’s according to Standard Chartered analysts, who argue that the real risk for oil demand is Germany. From March to November 2018, German oil demand fell every month compared with the previous year, in data from the Joint Organisations Data Initiative. Standard Chartered estimates that German oil demand fell 7.4% year over year in 2018 and will decline further in 2019 and 2020. Meanwhile, the International Energy Agency expects China’s demand growth to hold steady this year, though Standard Chartered expects it to slow slightly. “Traders have been worrying far too much about one thing,” said Paul Horsnell, head of commodities research at Standard Chartered. “Everybody was watching China and expecting the big swings to come from there. The places to watch were really the U.S. and Germany." Oil demand started 2018 off strong and helped propel prices to multiyear highs. However, crude tumbled in the fourth quarter as growth concerns roiled markets. The ongoing trade battle between the U.S. and China has also led to worries of slowing demand from the world’s two largest consumers of oil. Those factors helped drive oil to its lowest level in 18 months in late December. Since then, prices have rebounded on production cuts from major exporters and a stabilizing economic outlook. U.S. demand led growth from developed nations in 2018, Standard Chartered said, but the bank expects U.S. demand growth to slow from 504,000 barrels a day last year to 224,000 barrels a day in 2019, and 78,000 barrels a day in 2020. Faltering demand in Germany has preceded weak industrial data, raising fears of a continued slowdown in Europe’s largest economy. Industrial production dropped unexpectedly in December, and Germany’s economy contracted in the third quarter of 2018 for the first time since 2015. Standard Chartered analysts warn that the weakness could spread to other parts of Europe, further undermining demand for oil. To be sure, German demand makes up a fraction of the world’s oil consumption. According to the U.S. Energy Information Administration, Germany was the 10th largest oil consumer in 2016. Signs of slowing demand in other parts of Europe have also yet to materialize, Mr. Horsnell noted. “It doesn't suggest a broader contagion just on the back of this [data]," said Mr. Horsnell. “It’s primarily confined to Germany at this stage." Are you worried about slowing activity in the German economy? Let the author know your thoughts at stephanie.yang@wsj.com. Emailed comments may be edited before publication in future newsletters, and please make sure to include your name and location. |