Gulf oil producers anticipate peak in Chinese demand

CFOTO/Sipa USA/Reuters

• Demand expected to peak by 2027
• Doubts about oil oversupply continue
• Opec+ cuts decision pushed down prices

In any discussion of the outlook for oil prices, Chinese demand always features largely. For the Gulf this is particularly crucial. China is the main off-taker of Saudi, Iraqi, Omani, UAE and Kuwaiti crudes.  

At the weekend, Opec+ again committed to rolling over oil supply cuts to support crude prices but analysts say its efforts could be compromised by demand from China peaking sooner than expected. 

Chinese petroleum consumption reached a historic high last year and oil demand is expected to rise further this year as the economy recovers from the Covid pandemic, a debt overhang and property oversupply. 

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But, in the long run, projections of demand from China are increasingly bearish. In its latest China Energy Outlook 2060, China Petroleum & Chemical Corporation, or Sinopec, expects domestic oil demand to peak before 2027 – less than three years away. 

The refining giant said that non-fossil fuel energy will dominate China’s total energy supply by about 2045. 

The struggling property sector’s demand for plastics and fuels used in construction has already fallen.

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The China National Petroleum Corp Economics and Technology Research Institute in Beijing estimates that the low-carbon transition will result in transport oil demand peaking as early as 2025. 

Gasoline demand is expected to significantly slow this year as the use of electric vehicles increases.  

Demand for refined oil products will reach a peak of 400 million tonnes, according to Lining Wang, director of the Oil Market Research Department of the Institute, quoted by China Daily. 

However, other analysts counselled caution on calling peak Chinese demand too soon. Restraints on the supply of components for renewable energy may delay the energy transition, drive up costs and lead to higher oil and gas demand, said Kate Dourian, non-resident fellow at the Institute.

Other analysts estimate that China’s demand for oil will be supported by the petrochemicals industry and jet fuel for a while longer.  

Robert Mogielnicki, senior resident scholar at The Arab Gulf States Institute in Washington, told AGBI that Beijing will remain an essential energy partner of Saudi Arabia and other Gulf states. 

Gulf energy officials are “not putting all of their eggs in a Chinese basket”, said Mogielnicki. “There are many other Asian countries that serve as key energy partners.” 

Matt Stanley of Kpler, an analytics and data tracking company, said that reliability of supply is an important factor for Chinese off-takers. Chinese state-owned refiners account for about 60 percent of the nation’s total capacity, he said. These “consider the supply stability and political implications often more vital than pricing,” Stanley said.