China’s fuel production cuts could undermine global oil demand

Booming electric vehicle sales, meanwhile, mean that gasoline consumption probably peaked in 2023, according to Sinopec. Bloomberg

China’s pushing its oil refiners to reduce fuel output, raising new questions about demand in the largest importing nation just as the world’s drillers need buyers for the extra barrels they’re adding to the market.

The country’s top economic planner wants the industry to cut production of refined petroleum products and increase output of chemicals, according to its annual work report at the National People’s Congress on Wednesday. The order isn’t necessarily surprising — top refiner Sinopec Group said earlier in the week that consumption of both diesel and gasoline has peaked, leaving petrochemicals as the major growth driver for demand.

Diesel consumption has been declining since 2019, a trend exacerbated by the bursting of China’s property bubble, which has lessened the need for construction-related transport and equipment. Rising sales of trucks powered by cheaper liquefied natural gas are also reducing demand for the fuel.

Booming electric vehicle sales, meanwhile, mean that gasoline consumption probably peaked in 2023, according to Sinopec. Sales of the fuel averaged 13.2 million tons a month last year, down 9% from 2023 levels, according to data from industry consultant JLC International Ltd.

The shift away from transport fuels has significant implications for the domestic refining industry, already suffering from the overcapacity endemic to many of China’s industrial sectors, as well as for global crude producers.

Most at risk are China’s fleet of small, independent refiners, largely located in Shandong province, that account for about a fifth of the nation’s processing capacity. Older plants will find it trickier to make the switch than the newer, more advanced refineries designed with high chemical yields in mind.

Some of those newer plants, though, are able to process not just crude oil and its byproducts, but also products derived from shale gas drilling in the US. Chinese imports of American liquefied petroleum gas, for example, rose from next to nothing in 2019 to 18 million tons last year, about 3% of the volume of total crude oil imports.

“The petrochemical sector, which relies on naphtha and LPG, continues to be a driving force for oil demand,” said Mudit Nautiyal, senior analyst at consultancy Wood Mackenzie Ltd.

That could be bad news for traditional suppliers of oil. While retail sales of petroleum products in China ticked up 0.3% last year, overall consumption of crude oil fell 1.2%, the National Bureau of Statistics said in its annual report last week.

For OPEC+ and its members, the timing couldn’t be worse. The oil producing group plans to revive output at a time when prices are already under pressure. Chinese crude imports, meanwhile, fell in 2024 for the third time this decade, underscoring how the nation’s refiners can no longer be relied on to rescue global demand.

On the Wire

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China’s first trade data for 2025 are likely to show export growth stayed brisk over January and February, according to Bloomberg Economics.

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Beijing is battening down the hatches. Take soybeans, once one of the country’s major imports from the US and a target of the last trade war.