A crude oil tanker at an oil terminal off Waidiao island in Zhoushan, China. The country's demand has accounted for 41 per cent of annual global oil consumption growth, averaging 1.1 million barrels per day over the past three decades. — Reuters file
China’s crude oil imports are expected to peak as early as next year, as demand for transport fuels starts to decline for the world’s largest crude oil buyer. This marks the end of China’s long-standing role as the primary driver of expanding global oil consumption. The rapid shift towards electric mobility in China has taken oil producers and investors by surprise. No single market is capable of replacing the demand that China has historically provided, which has accounted for 41 per cent of annual global oil consumption growth, averaging 1.1 million barrels per day over the past three decades, according to the Statistical Review of World Energy.
Sales of electric and hybrid vehicles in China surpassed those of combustion engine vehicles for the first time in July, reducing the need for crude oil imports to produce gasoline. Prolonged economic weakness has also slowed overall oil consumption. Demand for transportation fuels began to decline this year, marking a three-year plateau that started in 2023, according to Ciaran Healy, a demand analyst at the International Energy Agency. This plateau is occurring two years earlier than the 2025-2027 period forecast by the IEA as recently as June.
As a result, producers and investors are facing the reality that Chinese crude imports may be nearing their peak, with only the expanding petrochemicals sector expected to support oil consumption in the coming years. Martijn Rats, chief commodity strategist at Morgan Stanley, expects jet fuel and petrochemicals to drive Chinese oil demand growth at about 100,000-200,000 barrels per day annually in the coming years, a far cry from the long-term trend.
While China’s crude imports are expected to rebound in November, they fell 3.4 per cent annually in the first 10 months of 2024, a significant decline only surpassed by the 7.2 per cent drop during the same period in 2021 due to the pandemic. This decline has impacted crude prices, which have mostly traded in the $70-$80 per barrel range despite conflicts in the Middle East and Ukraine, frustrating OPEC’s plans to boost supply and leading to four consecutive downward revisions in their 2024 demand growth forecasts.
The rise in electric vehicles and the economic slowdown, coupled with the replacement of diesel trucks by cheaper gas-fired vehicles, are also stalling diesel consumption. Jet fuel demand continues to grow, but not enough to offset the decline in gasoline and diesel use. With combined demand for transport fuels peaking and low refining margins, China’s refinery sector, which has long suffered from overcapacity, is expected to undergo accelerated consolidation.
Consultancy FGE predicts that China’s crude imports may peak next year at 11.2 million barrels per day, matching the record set in 2023 and 440,000 barrels per day above levels in the first 10 months of 2024. Energy Aspects forecasts that China’s crude imports may grow by 500,000 barrels per day between 2024 and 2026, with slim growth beyond that.
With fuel demand peaking, petrochemicals are set to become the main driver of medium-term oil demand growth. China is poised to increase imports of feedstocks like LPG and ethane to fill a domestic supply gap, according to the IEA. The peak in China’s total oil liquid demand, including naphtha, LPG, and fuel oil, is expected to occur around 2030, driven by petrochemical production.
China’s total oil demand is expected to peak around the end of the decade at 18.1 million barrels per day, 1.5 million barrels per day higher than in 2023. Although Beijing’s recent stimulus has supported oil prices, analysts and industry insiders do not expect a significant demand boost.
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