Three months into the Iran war, the oil market is adjusting to the fact that China, the largest importer of oil, needs significantly less fuel than before. Gasoline sales at Sinopec, China’s top petrol station operator, fell 8% in April compared to the previous year, while diesel sales dropped by 6%. This decline is surprising as fuel use in China has been decreasing due to slower economic growth and the increase in electric vehicles (EVs), but the recent drop is sharper than expected.
Goldman Sachs estimates gasoline and related product usage decreased by about 20% in April, while another firm reported a 15% decline. Unlike during the pandemic when travel was restricted, people in China are changing how they travel, with a 10% increase in rail journeys and a rise in subway and taxi usage, which have many electric options. The country’s EV usage surged, with charging rising 69% from the previous year, signaling that China can thrive on less oil, reducing its reliance on imported oil.
Since the war began, China has ramped down crude oil imports by tapping into stockpiles built during times of lower prices. In May, oil imports fell 29%, reaching their lowest point in eight years. Although this decrease is not sustainable without further stockpile usage, the ongoing behavioral changes could significantly impact global oil demand and the already overcapacity refining sector in China.
The current situation is complicated by rising diesel prices and the ongoing property crisis, which is driving down consumption. Some local construction projects struggle with funding for diesel due to tight budgets, and traders report a significant decline in demand from logistics and construction as many have shifted to electric vehicles.
Sinopec predicts gasoline and diesel demand will fall about 10% year-on-year in the coming quarters, a larger decline than previously anticipated. EV usage is continuing to rise, with a substantial increase in electric or hybrid vehicles seen during recent holidays. However, experts question the permanence of these changes, especially regarding gasoline demand, suggesting part of the shift may last.
With information from Reuters
