China's Oil Demand Grows, Outpacing Economic Recovery

China’s oil demand recovery has so far this year exceeded expectations, in contrast to the country's increasingly disappointing macro-economic data. Energy industry players and experts remain confident that China’s domestic oil demand has more upside to come, though its growth rate may have slowed down in May and June.

“China’s demand will recover further in the second half of this year," an analyst with a Chinese energy consultancy told Energy Intelligence on Friday.

The country’s oil demand in the first half this year was below his expectations mainly due to weaker-than-expected diesel demand, the analyst added.

China’s apparent oil demand, which does not include inventories, exceeded 16 million barrels per day in April for the first time on record, Energy Intelligence calculates.

Detailed products output and net imports figures are not yet available for May, but China’s refinery throughput fell by 270,000 b/d in May from April to 14.66 million b/d as planned maintenance began hitting its peak. June may also see lower refining runs.

China’s gasoline and diesel consumption both declined in May from April, the analyst said. "According to [Chinese] oil majors’ plans, state-run refineries' daily crude throughputs in June will decline from May,” he noted.

Stimulus Policies on the Way?

China’s economic data has shown signs of weaknesses since March and May indicators have done little to reassure markets. A small recovery in property sales earlier this year has faded, and China’s exports, a significant contributor to its economy, are also showing signs of weakness.

“China’s May activity disappoints again, adding to the notable slowing in April, suggesting softening momentum in China’s post-reopening recovery through the second quarter,” JP Morgan analysts said in a note on Thursday, echoing views largely shared amongst China observers.

JP Morgan analysts have revised down their current quarter growth forecast to 1.2% quarter on quarter. That compares against a stronger 3.5% increase previously.

The state People's Bank of China on Thursday lowered the rate on 237 billion yuan ($33.09 billion) worth of one-year medium-term lending facility loans by 10 basis points to 2.65%. The cut has raised expectations that the government will soon launch more stimulus measures to boost the economy.

“China will work further in implementing supportive measures to boost consumption, carry out the construction of major projects,” the China-based analyst said.

Large infrastructure projects typically support demand for diesel.

Beijing released this week a third batch of crude import quotas that raised volumes allocated so far to a record-high 194 million tons, indicating strong demand and the government’s willingness to encourage more downstream activity.

Energy Forecasters Raise China Demand Estimates

Opec and the Paris-based International Energy Agency (IEA) raised their demand forecasts for China’s demand earlier this week.

Opec revised Chinese demand growth this year by 40,000 b/d to 840,000 b/d in its June report. Back in February, Opec had pegged China's demand growth in 2023 at just 590,000 b/d.

The IEA upped its Chinese demand forecast to another record-high 1.485 million b/d for 2023 in its June report released this week, up from 1.3 million b/d in May.

The analyst from the China-based consultancy told Energy Intelligence he expects crude imports to reach a record 558 million tons (11.20 million b/d) this year, with refining runs up 9.4% from last year to an unprecedented 740 million tons, or 14.96 million b/d.

While petrochemicals demand remains sluggish, China's gasoline demand is firm, and diesel demand could rise by 6% this year, a source at an independent refiner told Energy Intelligence earlier this week, adding that he remains optimistic about the outlook for the year.