China’s oil demand in the wake of COVID-19
China’s oil demand has almost tripled over the past two decades, accounting on average for one-third of global oil demand growth every year. China is set to dominate future growth as well, as it will overtake the US as the world’s largest economy. But the pace of the country’s oil consumption is slowing while the product makeup is shifting, in line with the restructuring of the Chinese economy and policy efforts to curb local air pollution. Over the past two decades, China’s oil consumption has grown by over 9 million barrels per day (mb/d), according to BP, from 4.7 mb/d in 2000 to 14.1 mb/d in 2019. Yet over the next two decades, its oil use is expected to grow by 3–4 mb/d reaching 17-18 mb/d in 2040. While China’s oil use has a strong growth potential—given that China’s per capita oil use is currently around one-third of OECD levels—future growth rates will be tempered by efforts to tackle air pollution.
Whether China’s oil demand will increase by closer to 3 or 4 mb/d over the next two decades is extremely significant for global markets, especially in the context of the global energy transition and concerns about peak oil demand. Even a small adjustment in the outlook for a country that consumed 14 mb/d of oil in 2019 has huge ramifications for suppliers, refiners, and traders worldwide. This comment will assess whether China’s pandemic recovery efforts and support policies offer any clues as to its future oil demand growth. It will argue that even though the strong recovery in crude buying and refining throughputs in Q2 20 suggests an accelerated growth trajectory going forward, the government’s recovery package and its focus on electrification will in fact weigh on oil demand in the medium term. On the supply side, a closer look at China’s current refined product output points to a gradual shift to chemicals. Indeed, even though China’s oil demand growth is set slow, refiners are still pursuing large capacity additions with a view, however, of cutting product output and shifting to petrochemicals. COVID-19 seems to be fast-tracking that process too.