China's Oil Demand: A Downside Surprise in the Making
As China reduces oil demand, its refining spare capacity increases even further. Giving it leverage in a global market that is not investing in refineries.
China's oil demand is set to decline more rapidly than the general market expects. Concurrently, China has the largest spare capacity of refining capacity globally which will provide them with significant leverage and pricing power in exporting gasoline, diesel to countries that are slower with the energy transition and in a world that is not sufficiently directing capital towards refineries.
This decline in China’s oil demand will be driven by three key factors:
Dominance in Low-Cost Electric Vehicles: China is a leader in manufacturing affordable electric vehicles (EVs). BYD Seagull, with a price tag under US$10,000 and a range of 305 km on a single charge, exemplifies this trend. This affordability makes EVs a highly attractive option for Chinese consumers, leading to a significant shift away from gasoline-powered vehicles. In 2023, more than 8 million new plug-in electric cars were registered in China - displacing 0.2mb/d of oil demand. The sales are (up roughly 46% year-over-year), about 37% of the total volume (compared to 30% in 2022, 15% in 2021 and 6.3% in 2020).
Overcapacity in the Property Sector: China's property market is experiencing a period of overcapacity. This slowdown in construction activity will directly reduce the demand for oil used in transportation and heavy machinery associated with the industry. China's property market is experiencing a period of overcapacity. This slowdown in construction activity will directly reduce the demand for oil used in transportation and heavy machinery associated with the industry.
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