Investing.com — China, long a driver of global demand, is now experiencing one of the sharpest slowdowns in its oil consumption in decades.
“China’s oil demand is growing at the slowest pace in the last 15 years (ex-COVID) with a decline of -2% YTD,” Bernstein analysts said in a Thursday note.
This is part of a broader economic slowdown in the country, where the previously booming industrial and construction sectors have weakened, further contributing to the decline in demand.
Data from China’s National Bureau of Statistics (NBS) shows that demand fell 8% year-on-year in July, reaching 13.6 million barrels per day (MMbls/d), the lowest figure since 2009 (excluding the COVID period).
From January to July 2024, China’s average oil demand was 14.3 MMbls/d, down 0.3 MMbls/d or 2% YoY. This is the first time China has experienced a sustained decline in oil demand since 1990 (not counting the COVID crisis).
“According to Chinese NBS data, China’s processed crude oil fell 6% year-on-year to 13.6 million mil/day in July. Chinese independent refineries in Shangdong are at 50% capacity in July (last year 63%),” the analysts said.
These lower run rates indicate the difficult situation of China’s refining industry, and further reflect weak demand for refined products domestically.
The decline in domestic fuel sales – a key indicator of consumer demand for oil products – is another worrying trend. Reports from major Chinese oil companies PetroChina and Sinopec (OTC:) show a 2% decline in fuel sales YTD.
This reflects weakened consumption of diesel, gasoline and kerosene. In the second quarter of FY24, domestic fuel sales deteriorated further, down 6% year-on-year, indicating that demand is still weak.
The decline is sharp in diesel consumption, which is down 4% YTD. Diesel is closely linked to industrial and construction activity, and its decline signals a broader slowdown in the economy.
On the other hand, gasoline consumption has remained resilient, up 7% YTD, although this is expected to stagnate as electric vehicle (EV) adoption accelerates.
Electric vehicle penetration has now surpassed 50%, leading analysts to predict a peak in gasoline demand within the next five years. Kerosene demand, driven by a recovery in air travel, rose 19% YTD, but other oil products, including naphtha, liquefied petroleum gas (LPG) and fuel oil, fell 7% YTD.
Real-time data on offshore oil imports paints a similarly dim picture. China’s offshore oil imports fell 9% year-on-year to 10.0 MMbls/d in August. For the year to date, marine oil imports are down 2%, in line with declining demand trends seen in domestic sales and refining activity.
“Based on current run rates and business prospects, China’s oil demand could decline by -2 to -4% (0.3-0.6 MMbls/d) in 2024, which is lower than industry expectations,” the analysts said.
Sinopec, the country’s largest refiner, forecasts domestic fuel sales will fall 3.7% for the year, while refining production will fall 1.9%.
The International Energy Agency (IEA), which initially forecast oil demand growth of 0.3 million per day (+2% yoy), is likely to revise its forecast downwards in the coming months.
The decline in oil demand coincides with the Chinese economy facing structural challenges such as a slowing industrial sector, reduced real estate investment and weaker consumer spending.
Weaker demand for diesel and other heavy fuels is notable because it reflects broader economic trends, while increases in gasoline demand may slow as electric vehicles continue to gain market share.
Bernstein’s analysis shows that Chinese oil demand is likely to peak within the next five years. Demand for transportation fuels – gasoline and diesel – is likely to stagnate in 2025 as electric vehicle adoption increases, and by 2030, China’s overall oil demand is expected to peak.
While demand for petrochemical feedstocks is expected to continue to grow, this will not be enough to offset the decline in transportation fuels, which currently account for around 50% of total Chinese oil consumption.
As Chinese oil demand growth slows, the global oil market is likely to feel the impact. Over the past two decades, China has been responsible for more than 50% of net global oil demand growth. A slowdown or reversal in China’s demand trajectory could therefore have significant implications for oil prices.
“Without clear signs of a turnaround in Chinese oil demand, oil prices are likely to be lower in the second half of 2024 and into 2025,” the analysts said.
Oil prices have sold off in response to several factors, including weaker-than-expected ISM data, reduced risks from Libyan oil disruptions and, most importantly, weaker demand in China.
Analysts at Bernstein believe that the “golden age” of Chinese oil demand is coming to an end, and this will have lasting consequences for global oil markets.
While some sectors – such as petrochemicals – may continue to support demand, the overall outlook for Chinese oil consumption is one of slowing growth and ultimately decline.
