Why gasoline prices should remain low in Switzerland

The price of oil is determined in a global market and many things come into play, including real estate prices and Chinese babies.

Niklaus Vontobel / ch media

When China’s economy was still booming, this giant country was, in the words of the International Energy Agency (IEA), “the cornerstone of the growth in global oil demand this century “. It thus supported gasoline prices throughout the world, including at the pump in Switzerland. But all this is changing, as China is experiencing a triple turning point.

During times of economic boom, China “sometimes had the impression that its oil consumption was constantly increasing,” writes the IEA. China needed more and more oil for its factories, the construction of its infrastructure or the growing prosperity of its population of more than a billion inhabitants.

China was still the “cornerstone of global oil demand” over the past decade. The country was responsible for more than 60% of the total average increase. So, out of 10 additional barrels of oil the world needed, 6 went to China.

After the Covid-19 pandemic, China seemed to maintain this position for a long time. Outside of China, oil demand has not recovered to pre-Covid-19 levels for a long time. In China, on the other hand, it was more than 15% higher in 2023. China seemed to continue to inexorably consume more and more oil, and then, suddenly, everything changed.

Hello? Do you want a child?

In 2024, Chinese oil demand has not increased, it has decreased significantly. In July, it was 1.7% lower than the previous year. For the whole of 2024, the IEA still forecasts an increase, but of only around 1%. This is significantly less than in 2023, when it still reached almost 10%. The IEA considers this to be a “sharp slowdown”.

And this brutal slowdown is expected to continue. Because the trends currently holding back China’s oil consumption will not disappear anytime soon.

The first of these trends is China’s demographic shift, described as a “collapse” by an American economic institute. The birth rate literally collapsed from 2016so the population decreased in 2022 for the first time in 60 years. Since then, the situation has continued and the trend seems “irreversible”.

Even the Chinese government’s campaign, reported by the Financial Times, is unlikely to be of much help. For example, local authorities uninvitedly call married women to ask about their plans to have children. Universities have been urged to offer “love courses” to single students.

China also experienced a turning point in the real estate market, around 2021. Previously, prices had only increased for years, for example by almost 100% from 2005, as figures from the Bank for International Settlements. Since then, they have fallen by 11%.

Enough houses built for the next 10 years

Real estate developers can’t get rid of the houses they build, reports the Financial Times. According to an estimate by the American bank Goldman Sachs, the number of unsold homes is about 10 times what they got rid of in 2023. So they should not build any new houses at all for 10 years – or push sales to even lower prices.

This historic real estate crisis further weakens China’s oil consumption, as the IEA writes. For example, less diesel is needed for construction machinery and the transportation of materials. But this will hardly remain limited to this sector alone. If house prices fall, banks usually falter with them.

China is unlikely to be the cornerstone of global oil demand for much longer. It’s not just a crisis: on Chinese roads, the transition from combustion vehicles to electric vehicles seems to be happening quickly. In July and August, they already accounted for more than half of all car sales. New demand for oil from China thus collapses.

What will happen now? This is also the question that the International Energy Agency is asking itself. China was so “central” to oil demand that its “drastic” decline in growth raises considerable questions. Western countries will not compensate for its demand. Their demand for oil has stagnated for a decade and is expected to decline soon. Other Asian countries are not included, in India for example, the industry is too small for this.

The world may therefore be experiencing a historic turning point in the oil market.according to the IEA. Demand certainly continues to increase, but more and more slowly, until it stops towards the end of this decade.

Of course, there can always be crises and shocks that suddenly weaken oil production. But even these crises have less impact on oil and gasoline prices when global demand is weaker. Either way, fueling up is cheaper here than it would be without China’s housing crisis, the shift in its demographics and electric vehicles on its roads.

The news in Switzerland is here

Translated and adapted by Chiara Lecca