China’s Oil Demand Growth to Cool in 2024 as Recovery Fades

By Bloomberg

Dec 08, 2023

image is BloomburgMedia_S58FIHT0AFB400_08-12-2023_05-00-11_638375904000000000.jpg

China Petroleum & Chemical Corp. (Sinopec) storage tanks at the container terminal in Hong Kong, China, on Tuesday, Nov. 14, 2023. Oil steadied after a short-lived relief rally as the market digested differing views on the supply and demand outlook, while an industry report pointed to an expansion in US stockpiles. Photographer: Lam Yik/Bloomberg

China will see oil demand growth slowing next year, casting a pall over an already disappointing global picture for 2024, as the impact of pent-up appetite for travel and consumption following a three-year pandemic begins to fade away.

The world’s top crude importer will consume an additional 500,000 barrels a day next year, according to the median of estimates from 12 industry consultants and analysts surveyed by Bloomberg — less than a third of the increase in 2023. Petrochemical feedstock such as naphtha, and liquefied petroleum gas, or LPG, should account for most of the rise, along with jet fuel. Transport fuels such as gasoline, by contrast, are expected to become less significant as the electric-vehicle fleet grows.

“Next year, growth will be returning to the normal trajectory with pandemic factors fading. The outlook isn’t so encouraging,” said Ke Xiaoming, senior expert at Sinopec, China’s biggest oil refiner, adding the fate of oil products was also closely tied to that of the wider economy. “Petrochemicals are supported by extra capacity, but are facing poor margins.”

The prospect of less-impressive Chinese consumption is already casting a long shadow. The International Energy Agency, in its November monthly report, said oil demand growth had been supported by “a narrow set of non-OECD countries, led by China” in 2023 — but it projected a sharp deceleration for the world in 2024 with a surplus on the horizon, even with deeper and prolonged supply cuts by the Organization of Petroleum Exporting Countries and its Russia-led allies.

China accounted for 75% of this year’s increase in global demand, according to the IEA. Now the post-Covid lift in the second-largest economy is easing at a time when the world growth prospects look bleak, and a crude glut, especially from non-OPEC producers, is washing over the market, dragging prices steadily lower. US exports are nearing a record of 6 million barrels a day. Oil is heading for its seventh weekly decline — its longest losing streak since 2018.

“This year’s oil demand growth at over 10% will never be repeated,” said Li Ran, China oil market analyst with China National Petroleum Corp.’s Economics & Technology Research Institute, speaking on the sidelines of a conference in Beijing.

CNPC predicts China’s demand will return to 2019 levels. Jet fuel may see the strongest growth among oil products, Li said, but a sluggish economy will weigh on gasoline and diesel.

China’s drivers are going green in large numbers: electric vehicles accounted for a quarter of all new passenger car sales there in 2022, a figure that rose to almost 38% of the total in October. Rystad Energy analyst Lin Ye said the research outfit expected gasoline to grow just under 4%, with diesel rising 5%, in part because of a recovery in construction — but jet fuel will jump 33% as international travel returns.

“2024 can be seen as the starting point for a structural slowdown in China’s demand, with the biggest components, such as gasoline and diesel, losing momentum,” said Mia Geng, analyst with oil and gas consultancy FGE.

Ranice Tan, research analyst at consulting firm Wood Mackenzie Ltd, said naphtha would support growth, expanding 13%, while LPG demand would increase by 8% in 2024, thanks to extra capacity in propane dehydrogenation, or PDH, used in the production of plastics and synthetic fibers.

(Adds estimate, analyst comments in paragraphs 3 and 9, price in paragraph 5.)

©2023 Bloomberg L.P.

By Bloomberg News

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