China’s Diesel Demand Declines

NEW YORK (Reuters) – China’s diesel demand fell by 11% year over year to 3.9 million barrels per day in June, marking the biggest percentage drop since July 2021, according to the U.S. Energy Information Administration (EIA).

Why It’s Important

Sluggish fuel demand in China has significantly impacted oil markets this year, raising concerns among market participants who anticipated that the world’s second-largest economy would continue acting as a growth engine.

The Organization of Petroleum Exporting Countries (OPEC) reduced its 2024 oil demand forecast this week due to weaker expectations for China, marking the first cut since the outlook was released over a year ago. Similarly, the International Energy Agency (IEA) adjusted its 2025 forecast downwards, citing a fragile Chinese economy.

Context

While diesel consumption reached an all-time high in China last year, demand has sharply declined since the second quarter of this year, as per the EIA.

The decline can be attributed to two main factors: 1) A struggling property sector has hindered economic growth, and 2) liquefied natural gas (LNG) is increasingly being used instead of diesel in heavy-duty trucks, according to the EIA.

“Aside from less diesel usage due to slowing economic activity in the construction and property sectors, a small but growing share of China’s trucking fleet is using LNG instead of diesel for fuel,” the EIA noted.

By The Numbers

Sales of LNG-powered trucks surged 307% to 152,000 units last year, as reported by Chinese information provider CV World. Consultancy FGE estimates that LNG will displace 110,000 to 120,000 bpd of diesel demand in China this year and next.

In line with these trends, Chinese refineries have faced challenges. Oil refinery output in July decreased by 6.1% from a year ago, according to official data, marking a decline for the fourth consecutive month.