China’s declining diesel consumption, driven by the increasing use of LNG-powered trucks, is negatively impacting domestic fuel demand. Forecasters warn of further risks stemming from a sluggish economy, particularly due to a prolonged crisis in the property sector.
Historically, China has been a major growth engine for global oil demand, but its diminishing appetite for transport fuels, amid an energy transition and economic slowdown, is now dampening worldwide markets. According to the IEA’s July oil market report, global oil demand growth in the second quarter was the slowest since late 2022, largely due to reduced consumption in China.
Weak demand from manufacturing and construction is expected to continue in the latter half of the year as China’s real estate sector, which holds about 70% of household wealth, struggles. Analysts predict that oil demand growth in China will slow to just under 3% in 2024, down from an average of 4.6% over the previous decade and last year’s rebound of 11.7%.
A Reuters survey revealed that four out of five analysts expect second-half diesel demand to decline by 2% to 7% annually, estimating a range between 3.81 million to 4.67 million barrels per day (bpd). This follows a contraction in China’s oil consumption in the second quarter, leading refiners to reduce fuel output and crude imports.
Xia Shiqing, a consultant at Wood Mackenzie, noted that diesel demand is particularly weak, with significant displacement in the trucking sector. As LNG trucks gain traction, the demand for diesel is expected to fall by 2% to 3.93 million bpd in the second half of the year.
The International Energy Agency has been consistently lowering its 2024 oil product demand forecast for China, reflecting ongoing economic challenges. Kpler has also downgraded its second-half diesel demand growth forecast to 4%, indicating potential for further reductions.
FGE analysts highlighted that, despite the end of peak refinery maintenance, persistently weak diesel and gasoline demand provide little incentive for refiners to increase output, leading to an adjusted forecast of a 5% decline in diesel demand for the second half of the year.