As discussed during the APPEC conference on Monday, China's transition to lower-carbon fuels, coupled with a sluggish economy, is impeding the expansion of oil demand in the world's largest crude importer.
Daan Struyven, the head of oil research at Goldman Sachs, highlighted that China's annual demand growth has diminished from approximately 500,000-600,000 barrels per day (bpd) in the five years preceding the COVID-19 pandemic to a mere 200,000 bpd at present.
This decline is largely attributed to the increasing adoption of electric vehicles and the shift towards trucks powered by liquefied natural gas (LNG) instead of diesel, according to Struyven.
"China is highly focused on establishing itself as a leader in the global energy transition sector by enhancing supply, which is driving down the cost of alternatives," he stated.
Struyven also mentioned that China is working to lessen its dependence on fossil fuel imports, which negatively impacts oil prices.
In the second quarter, China's oil demand was particularly weak, affected by reduced refinery output and economic slowdown.
Jeff Currie, chief strategy officer of energy pathways at Carlyle Group, remarked, "There are two factors at play: the transition to LNG for trucks and the overall economic weakness."
Currie estimated that approximately 150,000 to 200,000 bpd of lost demand growth can be attributed to the energy transition, with the remainder linked to economic challenges and oil inventory destocking.
This year, worries about China's weak oil demand, along with OPEC+ producers' plans to reverse supply cuts, have contributed to downward pressure on oil prices, which have recently fallen to their lowest levels in over a year.
"Although we may see a slight increase in the fourth quarter of 2024, the growth of Chinese liquids demand is currently subdued and is expected to remain so," stated Jim Burkhard, vice president of research at S&P Global Commodity Insights.