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China Oil Demand in December 2011

Source: OPEC 1/6/2012, Location: Asia

China’s oil demand saw its weakest growth since the first quarter of 2009. Many factors led to this weak performance, such as a slowdown in economic activities, high retail prices and a government energy savings programme. However, oil demand in the fourth quarter is forecast to grow by 4.7%, with China ending the year with 5% growth. Despite a substantial weakening in the months after the summer and the expiry of sales incentives in the form of tax breaks for small-engine vehicles, Chinese auto sales rose, adding 15 million units in the year 2011. Of course, the Japanese earthquake negatively affected the auto industry in China and in the US.

In China, October’s oil consumption experienced strong growth in all the main product categories with the exception of kerosene and residential sectors. The strong growth in the country’s petrochemical industry implied increased usage of LPG and naphtha. Moreover, consumption of transportation fuels, especially gasoline, showed considerable increases, compared to the same month in 2010. Consumption of fuel oil in power plants boosted the required volume for residual fuel in the country, while industrial activity was the reason behind the strong diesel demand growth. October oil demand followed a weak performance that started in June.

Slow industrial manufacturing, along with weak gasoline demand, was the reason behind the unexpected weak demand for oil in the second quarter. An October diesel demand hike led to a shortage of diesel supply, resulting from refinery maintenance and weak retail margins. In the first ten months of the year, Chinese product demand growth showed substantial y-o-y growth of 0.4 mb/d or 5%, with transportation and industrial fuels accounting for the bulk of this increase. China’s oil demand is expected to rebound in the fourth quarter, ending the year of 2011 with growth of 4.8% y-o-y. This is considerably less than the growth of 8.5% that was seen in 2010.

As for 2012, China’s oil demand growth is expected to be almost unchanged in 2011 as the country’s economic activities are forecast to be marginally less. It is forecast that China’s oil demand growth will follow a normal quarterly distribution and end 2012 with growth of 4.6% y o-y. Transport fuel, mainly diesel and gasoline, demand will dominate the expected demand growth. Industrial fuel demand was also expected to show strong growth next year. Data from the China Association of Automobile Manufacturers (CAAM), showed that China's automobile sales decreased by 1.1% during October 2011 compared to a year earlier. The fall was due to a sharp drop in commercial vehicle sales. Moreover, the growth in passenger vehicle sales during the same month was much lower (1.1%) than in the previous month.

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