Fuel consumption in China is expected to be subdued for the next few months. Crude oil has long been discussed in China.
In China, the decline in processing rates at refineries as well as an increasing fleet of electric cars are the primary reasons for lower demand.
China, the world’s second largest economy and biggest crude oil importer after the US.
The lower demand for oil in China is a major factor which has affected global consumption. Oil prices are also struggling to maintain gains.
Major energy organizations predict that oil production will exceed global demand growth, which should keep oil prices low.
A layer of uncertainty is hanging over the financial and commodities markets as a result of Donald Trump’s election victory in 2024.
Trump will likely enforce sanctions against Iranian crude oil exports. This could impact China, as Beijing is the largest buyer.
talked to Emma Li of Vortexa to learn more about China’s current demand and the impact that Trump’s victory may have on shipments to Iran.
The following are edited extracts of the interview.
Invezz: How is China’s oil production doing?
China’s production at home is, I believe, more or less constant. It increased slightly on an annual basis. However, because China relies heavily on imported crude oil, the bulk of crude that is processed in China remains imported.
Imports are down mainly due to a decline in the refinery processing rates.
In general, the utilization rate or refinery run is quite low for most refineries. This includes smaller, private refineries.
Iranian crude oil exports to China will continue
Invezz Do you foresee any impact with Trump returning to the White House soon?
In order to increase their refining profits, Chinese refiners are turning to cheaper crude oil this year.
So, even though the US has tightened sanctions on Iran and added more ships to its blacklist, China’s crude oil imports have risen 30% year-over-year until October.
The full figures for November are not yet available.
This is likely to continue in the months ahead.
Presently, Trump’s return as President does not seem to be affecting the situation or causing any concern. With more restrictions on ships, the demand will increase for this fleet and ship-to-ship transfer.
This will only make China’s business more difficult, but not reduce its volumes.
Invezz Do you think China will retaliate with its own sanctions against the US if Trump restricts Iran’s crude oil exports?
We don’t know what Trump will do to the business.
We know so far that sanctions are mostly aimed at the owners of ships or oil. The Chinese only buy delivered cargoes.
They aren’t in charge of loading or shipments. The oil is only received in China. I do not see any impact.
The Chinese don’t seem to care much about sanctions.
If, for example, the Chinese ship is listed on the sanctions list, the buyers will ask their traders to move the cargo over onto non-sanctioned ships so there’s no problem.
Poor margins hurt refineries
What is the primary reason for low processing rates at Chinese refineries?
There are many reasons. Your overall refined products export quotas are still tight. The big refineries are unable to sell any more motor fuels abroad.
The slowing economy has a negative impact on fuel consumption in the domestic market. Your overall demand for diesel is lower than in previous years.
Jet fuel demand has increased due to the recovery of the economy following the COVID-19 epidemic.
The new EVs that are replacing fossil-fuel cars have a major impact on gasoline consumption.
China’s gasoline demand will peak
Invezz What kind of impact will the growing fleet of EVs have on China’s fuel demand?
Experts and calculations predict that China’s gas demand will peak this or next year. This means that overall consumption or demand for gasoline should decrease in the future.
Because we’re currently at a low point or at the very least in a period of weakness, there may still be room to recover the demand for diesel.
We have to wait and see how LNG trucks will compete against diesel trucks. We don’t expect LNG to replace diesel trucks at the same rate as electric vehicles will overtake gasoline-powered cars, because the government doesn’t provide subsidies for LNG trucks.
Long-term, the goal of the government is to reduce oil consumption. The government also wants to reduce its dependence on imported crude, which is why it prefers imports via land, pipeline or domestic production.
In order to reduce carbon emissions and air pollution, the government encourages more EVs instead of gasoline.
What is your view on the overall demand for crude oil in China
On a comparison of year on year, the waterborne crude oil demand for 2024 is down by more than 5%.
Next year’s crude oil demand is likely to be a bit low; there won’t be much change.
We do not anticipate a significant recovery of crude oil demand in the first quarter of 2025 or first half. Only in the second quarter of 2019 can we expect a significant increase.
It’s still low to moderate in comparison with 2023.
Refining old and polluting refineries
What is China doing to old oil refineries and natural gas pipelines?
There are more pipelines being built between China and Russia. The oil majors have also probably signed more long-term contracts with major LNG suppliers. It’s a market trend, I’m not sure of the exact number.
If you look at China’s new refineries, whether they have just been added or are upcoming, all of them will be integrated refineries.
The most modern technology is used in integrated refineries.
They are petrochemical-focused, so they do not just produce gasoline, diesel, and jet fuel, but they are heavily into petrochemicals.
In China, government officials are trying to replace the old and high pollution refining plants with more modern ones.
Invezz :What is your expectation from the Ministerial Meeting of the Organization of the Petroleum Exporting Countries on Sunday?
I’m not sure about OPEC’s decision but, I believe the Chinese and especially oil majors, will strive to keep a positive relationship with the major oil producing countries like OPEC.
China is determined to keep the same type of contract as Saudi Arabia.
I’m sure that even for these new refinery capacities they have been in negotiations with the larger oil producers, to reach some kind of long-term agreement.
These volumes would be considered the baseline load in China, and therefore the Chinese government will want to ensure these supplies.
The post Interview with Emma Li, Vortexa CEO: China’s gasoline demand may peak by 2025 may be updated as new information becomes available.
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