Chinese road fuel demand has been struggling this year as EV sales are soaring and diesel sales are falling.
The rise of electric vehicles and the growing use of LNG in trucking have combined with slower-than-expected economic growth and activity to dent China’s oil demand growth and undermine earlier forecasts of global oil demand this year.
OPEC has been wrong-footed by the surge in electric mobility in China, the International Energy Agency (IEA) said in its World Energy Outlook 2024 report this week.
Chinese Oil Demand Overestimated
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Indeed, just this week, OPEC cut its 2024 global oil demand forecast in the third consecutive monthly report, citing actual consumption data so far this year and expectations of slightly lower demand in some regions, including China.
When actual data on consumption started arriving around the middle of this year, the organization of the Middle East’s biggest oil producers began adjusting their estimates of China’s oil demand growth. In each report since August, OPEC has signaled that its estimates of Chinese oil demand growth were too optimistic when it published the first outlook for 2024 in July 2023.
Over the past year, China’s economy has faltered, with growth below expectations. The property crisis has hit construction activity and diesel use with it, while EV and LNG truck sales have soared, displacing some growth in gasoline and diesel. Consumption of diesel has even dropped in some months this year compared to the same months of 2023.
OPEC continues to be optimistic about global oil demand in the long term, expecting India to soon replace China as the key growth driver of consumption, and more oil and gas to be needed to lift around a billion people out of energy poverty.
The cartel doesn’t see any peak oil demand on the horizon, unlike the IEA, which has just doubled down on its forecast from last year that demand for all three fossil fuels – oil, natural gas, and coal – would peak as soon as this decade.
OPEC has called out the IEA several times for what the cartel says are “dangerous” predictions of peak oil by 2030, which would “only lead to energy volatility on a potentially unprecedented scale.”
Despite the optimistic long-term view, OPEC’s short-term demand outlook on China has been revised down, again. In the latest report, the cartel lowered its estimate of Chinese demand growth, which accounted for most of the downward revision of global oil demand growth in 2024. OPEC now expects China’s oil demand to grow by 580,000 barrels per day (bpd) this year, down from the 650,000 bpd growth expected in the September report.
China’s annual demand growth slowed in August from July to just 83,000 bpd year-over-year, with the increase driven by strong petrochemical feedstock requirements, OPEC said.
“Diesel consumption continued to be subdued by slowing economic activity, mostly a slowdown in building and housing construction, and the substitution of liquefied natural gas (LNG) for petroleum diesel fuel in heavy-duty trucks,” the organization said in this week’s report.
While OPEC recognizes there is a structural shift in road fuel demand in China, it hasn’t backed down from its estimate that global oil demand will continue to grow, and peak oil demand is not on the horizon.
“There is no peak oil demand on the horizon,” the cartel said, noting that “What the Outlook underscores is that the fantasy of phasing out oil and gas bears no relation to fact.”
Peak Oil by 2030?
In contrast, the IEA’s annual World Energy Outlook 2024 report not only predicts peak oil by 2030 but it also says that “The rise of electric mobility, led by China, is wrong-footing oil producers.”
The agency’s Stated Policies Scenario (STEPS), its base case scenario, expects the slowdown in global oil demand growth to put “major resource owners in a bind as they face a significant overhang of supply.”
“China has been the engine of oil market growth in recent decades, but that engine is now switching over to electricity,” the IEA said.
Chinese diesel demand has likely peaked as the use of LNG as a fuel in heavy-duty vehicles has been surging in recent months, analysts say.
The property sector crisis and the rise of LNG use in trucking have weighed on China’s diesel demand, dampening the prospects of oil demand growth in the world’s top crude importer.
Chinese sales of heavy-duty trucks powered by LNG jumped from below 10% to reach as much as 30% of the market in the latter months of 2023, which has resulted in the displacement of over 8% of road diesel demand in the country, Wood Mackenzie said in July.
Fuel substitution, alongside weaker economic activity, has led to falling diesel demand in China, the U.S. Energy Information Administration (EIA) says.
In addition, China’s EV sales have already topped conventional car registrations for three consecutive months. EV and plug-in hybrid sales surged by 50.9% in September from a year earlier, grabbing a 52.8% share of total sales, the latest Chinese data showed last week.
Analysts and major oil trading houses acknowledge the structural shift in China’s road fuel demand.
China’s shift toward EVs will bring about domestic gasoline demand peaking either this year or next, according to Russell Hardy, CEO of the world’s biggest independent oil trader, Vitol Group.
EVs and LNG trucking may be denting gasoline and diesel demand in China, but consumption of petrochemicals and jet fuel is set to continue rising for years.
The decades of Chinese dominance as the top global oil demand growth driver may be over, but new demand centers in emerging markets, especially India, are set to push global oil demand higher.
By Tsvetana Paraskova for Oilprice.com