Daily Economic Update

China: Growth in exports accelerates in June, beating expectations. Growth in exports accelerated in June for the first time in three months to stand at 5.8% y/y (4.8% in May), beating expectations. This was helped by a narrower decrease in exports to the US, which stood at -16% y/y compared with close to -35% in May, while export growth to other countries remained solid. China and the US agreed on a tentative trade truce in May, which lowered the tariffs they imposed on each other in April, giving support to June’s trade numbers. Meanwhile, imports edged up by 1.1% y/y (-3.4% in May), the first increase since February, but marginally below expectations. For the first half of the year, despite the global tariff headwinds, Chinese exports defied expectations and climbed by 5.9% y/y while imports fell by 3.9% as domestic demand remained weak. This shows that international trade remains a key driver of economic growth in China with the merchandise trade surplus increasing by a solid 35% in H1, to stand at $586 billion.

Oil: Prices rise on strong summer demand, shipping disruptions in the Red Sea. Brent futures settled at $70.4/bbl on Friday, gaining 3% w/w, helped by the IEA’s assessment of a tighter market due to robust summer demand, stronger crude pricing by Saudi Aramco, and shipping disruptions in the Red Sea. The price action last week subverted expectations with the market largely shrugging off OPEC-8’s larger-than-expected supply hike for August (discussed in more detail here) and instead took cue from Aramco sharply increasing its official selling prices for August, an indication of strong seasonal demand. The IEA echoed a similar message in its monthly oil market report in which the agency stated that the oil market is “tighter than it appears”, owing to robust seasonal demand from travel and power generation. Nonetheless, the IEA marginally revised down its oil demand growth estimate for this year and next by 20 kb/d to 700 kb/d and 720 kb/d, respectively, with the former being the lowest rate since 2009 (with the exception of pandemic-linked 2020). On the supply side, the IEA noted that OPEC-8’s decision to quickly restore supply to the market will push global supply growth this year to 2.1 mb/d, a 300 kb/d upward revision from its previous forecast and a figure that far exceeds the comparatively slower demand growth, pushing the market into surplus territory this year. The IEA’s estimates for demand growth, however, remain considerably below the market’s consensus. Both the EIA and Oxford Institute for Energy see oil demand growth at roughly 1.1 mb/d this year and recent comments at the OPEC seminar from both Aramco’s and KPC’s CEOs suggest a 1.3 mb/d average annual increase, matching OPEC’s projections. A key question on supply will revolve around OPEC-8 members’ ability to bring back production at the announced pace as actual increases have thus far been less than the targeted. OPEC’s monthly oil market report, due on Tuesday, will shed light on how much OPEC-8 were able to increase production in June as well as give further data on Saudi’s production, which the IEA reckons was 400 kb/d above quota during that month.

Oil: OPEC hikes long-term demand growth estimate. In its annual World Oil Outlook, OPEC now sees oil demand growing by 19.2 mb/d to 123 mb/d by 2050, a 3 mb/d increase compared to last year’s forecast and a clear rejection of the “peak oil demand” narrative. According to OPEC, an improved macroeconomic outlook as well as recent policy shifts including the US’s withdrawal from the Paris Climate Agreement – US President Trump signed an executive order to officially withdraw in January – and the removal of EV subsidies in several EU member states will substantially increase demand for hydrocarbons. India will account for the bulk of the increase, with oil consumption there more than doubling to 13.7 mb/d by 2050, followed by “Other Asia”, the Middle East, and Africa. Meanwhile, oil demand in OECD economies is set to peak at 46.6 mb/d by 2030, a 1 mb/d increase from 2024 levels, before declining to 37.2 mb/d by the end of the forecast period. On the sectoral front, demand is seen growing fastest in road transport (+5.3 mb/d) despite the increasing share of alternative fuel vehicles in the global car fleet, followed by petrochemicals (+4.7 mb/d) and aviation (+4.2 mb/d). Consequently, gasoil/diesel, kerosene and ethane/LPG are projected to lead growth in products. To match the increase in demand, the agency sees DoC members (formerly known as OPEC+) doing much of the heavy lifting with the liquids supply (including NGLs) there rising from 49.1 mb/d in 2024 to 64.1 mb/d by 2050. Meanwhile, liquids supply from non-DoC members will likely rise from the current 53.3 mb/d to peak in the mid 2030’s at 60 mb/d before declining. To achieve this significant rise in supply will require $18.2 trillion in investments in the oil sector, most of which will be concentrated upstream. Overall, OPEC’s view, especially on demand, is in strong contrast with the IEA’s, which projected an oil demand peak by the end of the decade (more details on the IEA's outlook).

Chart 1: Oil prices ($/bbl) Source: Haver

Chart 2: Oil demand by region (mb/d) Source: OPEC

Global: Trade developments, China Q2 GDP, and US June CPI and retails sales key matters this week. Tariff/trade developments in view of President Trump’s recent re-igniting of escalations remains the most important matter to monitor. In addition, there will be a “major announcement” by Trump on Russia later today as he had mentioned. In terms of data releases, in the US, CPI inflation for June will be out on Tuesday with consensus expectations pointing to a higher reading of 0.3% m/m for both headline and core compared with 0.1% in May. Retail sales (on Thursday) are forecast to be flat in June after a 0.9% m/m drop in May. Weekly jobless claims (Thursday) remain a key data point to monitor given the high level of continuous claims recently. In the UK, CPI inflation for June (Wednesday) is seen unchanged but elevated at 3.4% and 3.5% y/y for headline and core, respectively, as per consensus estimates. In China, Q2 GDP growth (Tuesday) is seen softening to 5.2% y/y from 5.4% in Q1. Similarly, growths in retail sales and industrial production for June are forecast to decelerate to 5.5% and 5.6% y/y, respectively, from 6.4% and 5.8% in May. Finally in Japan, CPI inflation for June will be out on Friday with consensus expectations pointing to a softening to 3.3% y/y for the core rate from 3.7% in May.

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