The days of explosive growth in China’s crude oil demand look to be behind it, with future expansion expected to be moderate and cyclical, says a top US shipbroker.
Last year, China’s overall oil demand declined by 417,000 barrels per day (bpd), or 2.7%, compared to 2021 due to China’s zero-Covid policy.
Transportation fuels, gasoline and jet fuel suffered the largest declines as lockdowns affected people’s ability to travel. They also affected manufacturing and petrochemical demand.
Since the lockdowns were lifted, the economic outlook for China has improved and with it oil demand growth, according to Poten & Partners.
According to China’s Civil Aviation Administration, passenger traffic on domestic routes increased by 192% in March, compared to the prior year, and the volumes of passengers on international routes multiplied by 10 due to the relaxation of strict limits on international flights.
The International Energy Agency (IEA) forecasts Chinese oil demand to grow by 1.16m bpd in 2023, some 342,000 bpd higher than what they predicted in December 2022.
The IEA is the only major agency with an updated outlook for 2024, for which they see growth declining to 400,000 bpd.
Overall, the short-term outlook for Chinese oil demand is “reasonably positive”, but the longer-term outlook is more complicated, the broker said.
Poten says China will “remain a force in the oil (and tanker) markets for years to come” but factors such as an ageing population and the growth of electric vehicles are set to temper demand.
“China’s working age population is declining, and India is estimated to have recently passed China as the most populous country on the planet,” according to Poten.
For decades, China had aggressively curtailed its population growth through various policy measures such as the one child policy.
Poten said the country has relaxed these policies in recent years in an effort to undo some of the impact, but these actions have not been very successful to date.
“In the last three years, the working age population of China has reportedly declined by 41m people. This trend will affect the country’s economic growth rate and future oil demand,” said Poten.
Another negative factor impacting future oil demand is that China is promoting the sales of electric vehicles.
“It has developed a large electric car industry, both as a strategic industry and for environmental reasons,” Poten said.
“Sales of electric cars in China increased by over 60% in 2022 and more than half of all worldwide [electric vehicles] are currently operating in China.
“China targets to reach EV sales of 50% in key air pollution control regions and 40% overall by 2030, but the IEA estimates that China might even reach these goals ahead of 2030,” the broker added.
