Commodities
How bad is China oil demand?
Investing.com — China, long a driver of global demand, is now seeing one of the sharpest slowdowns in its oil consumption in recent decades.
“China’s oil demand is growing at the slowest pace in the last 15 years (ex-COVID) with decline of -2% YTD,” said analysts at Bernstein in a note dated Thursday.
This is part of a wider economic slowdown in the country, where the previously thriving industrial and construction sectors have weakened, further contributing to the decline in demand.
Data from China’s National Bureau of Statistics (NBS) report that demand fell by 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 by 0.3 MMbls/d or 2% y-o-y. This represents the first time China has faced a sustained decline in oil demand since 1990 (excluding the COVID downturn).
“China processed crude is down -6% y-o-y at 13.6MMbls/d in July according to China NBS data. China’s Shangdong independent refinery run rates are at 50% in July (63% last year),” the analysts said.
These lower run rates flag the struggling state of China’s refining industry, further reflecting weak demand for refined products domestically.
The drop in domestic fuel sales—an important indicator of consumer-level demand for oil products—is another worrying trend. Reports from major Chinese oil companies, PetroChina and Sinopec (OTC:), show a 2% drop in fuel sales YTD.
This reflects weakened consumption of diesel, gasoline, and kerosene. In the second quarter of FY24, domestic fuel sales deteriorated further, with a 6% y-o-y decline, indicating continued sluggishness in demand.
The drop is stark in diesel consumption, which is down 4% YTD. Diesel is closely tied to industrial and construction activities, and its decline signals a broader slowdown in the economy.
On the other hand, gasoline consumption has remained resilient, increasing by 7% YTD, though it is expected to plateau as electric vehicle (EV) adoption accelerates.
EV penetration has now surpassed 50%, leading analysts to forecast a peak in gasoline demand within the next five years. Kerosene demand, driven by a recovery in air travel, rose by 19% YTD, but other oil products, including naphtha, liquefied petroleum gas (LPG), and fuel oil, fell by 7% YTD.
Real-time data on seaborne oil imports paints a similarly weak picture. China’s seaborne oil imports in August were down 9% y-o-y to 10.0 MMbls/d. For the year-to-date, seaborne oil imports are down by 2%, which aligns with the declining demand trends observed in domestic sales and refining activity.
“Based on current run rates and company outlook, China’s oil demand could fall by -2 to -4% (0.3-0.6MMbls/d) in 2024 which is below industry expectations,” the analysts said.
Sinopec, the country’s largest refiner, projects that domestic fuel sales will fall by 3.7% y-o-y for the full year, while refining throughput will drop by 1.9%.
The International Energy Agency (IEA), which initially forecasted oil demand growth of 0.3 MMbls/d (+2% y-o-y), is likely to revise its outlook downward in the coming months.
The fall in oil demand coincides with China’s economy seeing structural challenges, such as a slowing industrial sector, reduced property investment, and softer consumer spending.
The weaker demand for diesel and other heavy fuels is notable, as it mirrors broader economic trends, while the rise in gasoline demand may slow as electric vehicles continue to capture a larger market share.
Bernstein’s analysis indicates that China’s oil demand is likely to peak within the next five years. Demand for transportation fuels—gasoline and diesel—will likely plateau by 2025 as EV adoption increases, and by 2030, total oil demand in China is expected to peak.
While demand for petrochemical feedstocks is projected to continue growing, it will not be enough to offset the decline in transportation fuels, which currently account for about 50% of China’s total oil consumption.
As China’s oil demand growth slows, the global oil market is likely to feel the effects. Over the past two decades, China has accounted for more than 50% of net global oil demand growth, so a slowdown or reversal in China’s demand trajectory could have significant implications for oil prices.
“Without clear signs of a turn around from China oil demand then oil prices are likely to be lower in the 2H24 and into 2025,” the analysts said.
Oil prices have sold off in response to various factors, including weaker-than-expected ISM data, reduced risks from Libyan oil disruptions, and, importantly, China’s softer demand.
Analysts at Bernstein believe that the “golden age” of China’s oil demand is drawing to a close, and this will have lasting implications for global oil markets.
While some sectors—such as petrochemical feedstocks—may continue to support demand, the overall outlook for China’s oil consumption is one of slowing growth and eventual decline.
By Arunima Kumar
(Reuters) -Oil prices paused their rally on Tuesday, but remained near four-month highs, with the market’s attention focused on the impact of new U.S. sanctions on Russian oil exports to key buyers India and China.
futures slipped 54 cents, or 0.67%, to $80.47 a barrel by 1033 GMT, while U.S. West Texas Intermediate (WTI) crude fell 53 cents, or 0.67% to $78.29 a barrel.
Prices jumped 2% on Monday after the U.S. Treasury Department on Friday imposed sanctions on Gazprom (MCX:) Neft and Surgutneftegas as well as 183 vessels that transport oil as part of Russia’s so-called “shadow fleet” of tankers.
“With several nations seeking alternative fuel supplies in order to adapt to the sanctions, there may be more advances in store, even if prices correct a bit lower should tomorrow’s U.S. CPI data come in somewhat hotter-than-expected”, said Charalampos Pissouros, senior investment analyst at brokerage XM.
The U.S. producer price index (PPI) will be released today, followed by the consumer price index (CPI) on Wednesday.
A core inflation rise above the 0.2% forecast could lower the likelihood of further Federal Reserve rate cuts, which typically support economic growth and could boost oil demand. [MKTS/GLOB]
While analysts were still expecting a significant price impact on Russian oil supplies from the fresh sanctions, their effect on the physical market could be less pronounced than what the affected volumes might suggest.
ING analysts estimated the new sanctions had the potential to erase the entire 700,000 barrel-per-day surplus they had forecast for this year, but said the real impact could be lower.
“The actual reduction in flows will likely be less, as Russia and buyers find ways around these sanctions,” they said in a note.
Nevertheless, analysts expect less of an supply overhang in the market as a result.
“We anticipate that the latest round of sanctions are more likely to move the market closer to balance this year, with less pressure on demand growth to achieve this,” said Panmure Liberum analyst Ashley Kelty.
Uncertainty about demand from major buyer China could blunt the impact of the tighter supply. China’s imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic, official data showed on Monday.
By Arathy Somasekhar
HOUSTON (Reuters) – Peru’s niche Bretaña is gaining popularity in the United States, with the first cargo discharging in the U.S. Gulf Coast this month as U.S. refiners seek alternatives for declining Mexican heavy crude.
Bretaña, a rare heavy sweet crude with minimal metals, is produced in the Peruvian side of the Amazon (NASDAQ:) rainforest. It is then barged along the Amazon river and loaded onto larger ships that depart from Brazil.
The vessel Radiant Pride transported about 300,000 barrels of Bretaña from Manaus, on the banks of the Negro river in Brazil, and discharged on Jan. 2 in Houston, ship tracking data from Kpler and LSEG showed.
The cargo was bought by oil major Shell (LON:), a source said. Shell declined to comment.
“Given the drop in heavy sour crude from Mexico to the U.S. Gulf Coast over the last year, we are starting to see new heavy grades being pulled in to backfill this loss – this is a trend we only expect to continue,” said Matt Smith, an analyst at Kpler.
U.S. imports from Mexico fell to their lowest on record in 2024 as the Latin American country’s oil production fell and a larger portion of output remained at home to be refined.
Two cargoes of Peru’s Bretaña, a relatively new entrant into the market since production began in 2018, discharged at the U.S. West Coast last year – one at Marathon Petroleum (NYSE:) and another at PBF Energy (NYSE:) terminals, the Kpler data showed.
Marathon Petroleum declined to comment. PBF Energy did not immediately reply to a request for comment.
PetroTal Corp, the producer of Block 95 where the Bretaña oilfield is located, bought the assets from Canadian producer Gran Tierra Energy (NYSE:) in 2017, and currently produces about 20,000 barrels of oil per day, according to Chief Executive Officer Manuel Zúñiga.
Challenges with transporting the crude via a pipeline operated by Peru’s state oil firm Petroperu led to a brief halt in exports between 2022 and 2024, Zúñiga said.
Petroperu has struggled in recent years to keep the line operational amid spills and social conflict interrupting its flow.
Three cargoes of Bretaña headed to the U.S. West Coast and one to the U.S. East Coast between 2020 and 2022, Kpler data showed.
About 90% of the Bretaña crude produced by PetroTal is exported, and the remaining is transported by barges to Petroperu’s refinery in Iquitos, Zúñiga said.
PetroTal has a contract with Houston-based Novum Energy under which Novum buys the crude for export and arranges its transportation, Zúñiga added.
Novum did not immediately respond to a request for comment.
While PetroTal hopes to increase production, permitting delays as well as reliance on barges are a current limitation, Zúñiga said.
“You need access to the pipeline,” Zúñiga said, adding that the company is working to secure use of the infrastructure.
Petroperu said last year that it would hold negotiations with producers in the Peruvian jungle so that they can use the pipeline with a fair rate to help cover operational costs.
Investing.com — The future of is unclear due to the anticipated strengthening of the dollar, impending tariffs, and a potential slowdown in the energy transition under the incoming administration of President-elect Donald Trump, according to analysts at BMI, cited by Wall Street Journal.
They point out that even though copper is likely to prosper due to environmental-driven sentiment, the risks associated with their relatively optimistic perspective are leaning towards the negative side.
In a note, the BMI analysts stated, “While we still expect that copper will continue to thrive due to climate-driven sentiment, we note that the balance of risks to our relatively bullish outlook is tilted to the downside.” They do not anticipate a substantial increase in metals demand from the Chinese construction industry.
Nonetheless, they suggest that enhanced industrial activity and growth, driven by government stimulus, could be enough to elevate prices. As of now, the London Metal Exchange (LME) three-month copper is trading 0.6% higher at $9,153 per metric ton.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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