China Diesel Demand Growth Under Pressure

China Diesel Demand Growth Under Pressure
Analysts at BMI said mainland China's diesel demand growth is under pressure from natural gas and the electrification of the transport sector.
Image by wenpu wang via iStock

In a BMI report sent to Rigzone by the Fitch Group recently, analysts at BMI said mainland China’s diesel demand growth is under pressure from natural gas and the electrification of the transport sector.

“We have revised China’s diesel consumption forecast for 2024 to 4.0 million barrels per day, down from the previous forecast of 4.1 million barrels per day,” the analysts stated in the report.

“The downward revisions reflect ongoing weakness in demand from various economic sectors and a slower economic growth rate,” they added.

The analysts noted in the report that a review of diesel demand numbers in the first half of 2024 indicates that diesel consumption fell by 11 percent year over year to 3.9 million barrels per day.

“Weak demand from the manufacturing and construction sectors is expected to persist for the rest of the year as the country grapples with lingering real estate sector woes,” the analysts added.

“Diesel demand is further weighed down by the growing preference for LNG-fueled heavy-duty vehicles in the transport sector,” they continued.

The BMI analysts stated in the report that the Chinese government is making growing efforts to promote heavy-duty LNG trucks as part of its policy to reduce emissions from the road transport sector.

“According to industry sources, the sale of LNG trucks increased by more than 144 percent year over year to 71,600 units between January and April 2024,” the analysts said.

“Lower LNG import prices are one of the key drivers behind the growing popularity of LNG-fueled trucks in the commercial sector. Rising LNG supplies at low cost are partly driving the growing preference for LNG trucks, thereby eroding demand for diesel,” they added.

“We project a four percent year over year decline in China’s diesel consumption in 2024,” they warned.

The BMI analysts went on to state in the report that they anticipate that the annual decrease in Chinese diesel demand could average in excess of 150,000 barrels per day between 2024 and 2025.

“We also expect China’s diesel demand could peak before the end of the decade, against the backdrop of the accelerating adoption of electric and LNG-fueled vehicles in private, public, and commercial segments of the road transportation,” they stated.

Asia Diesel Supply

In the report, the BMI analysts noted that Asia’s diesel supply is expected to remain structurally long due to weakness in demand-side fundamentals and a potential increase in supplies.

“Diesel supply has been rising, and diesel imports from Indonesia are expected to decline further in 2024 when new supplies become available as the expanded Balikpapan refinery commences production in May 2024,” they said.

“India’s diesel surplus will increase further if refining capacity additions are completed. Rising competition for market shares among leading diesel exporters such as South Korea, China, India, the U.S., and Middle Eastern refiners could prove to be unfavorable for a stronger diesel price outlook in the long term,” they added.

“Thailand, Singapore, and Malaysia are expected to maintain diesel production at optimal levels for the rest of 2024 despite existing opportunities to export to international markets,” they continued.

The analysts went on to note in the report that a regional supply glut may persist due to weakening regional demand and prices.

“Diesel inventory levels in Singapore continue to rise, supported by increased inflows from the region,” they said.

“Data from Singapore International Enterprise indicates that middle distillate stocks, mainly comprising diesel, remained historically high since 2021 staying above 10 million barrels in the second week of September 2024,” they added.

“Consequently, average Asian diesel crack spreads have fallen to below $9.7 per barrel in the third week of August from a peak of $34 per barrel in January 2023,” they continued.

“We expect Asian diesel crack spreads to remain under downward pressure as long as oversupply continues to persist,” they said.

The analysts went on to state that upside risks to diesel prices could only be supported by lowering refinery utilization rates and diesel production cuts across the refining industry.

Indonesia Oil, Diesel Demand

In a separate BMI report sent to Rigzone by the Fitch Group back in August, BMI analysts said they had revised down their forecast for Indonesia’s oil demand growth, “considering the potential loss in diesel demand due to fuel substitution in the power and industrial sectors”.

“Indonesia’s long-term fuel demand growth is expected to slow as the government seeks to diversify away from fossil fuels,” the analysts stated in that report.

“We now project demand growth to average two percent year on year over the three years to 2026, down from the previous forecast of three percent,” they added.

“Refined fuel consumption in 2024 will remain supported by sustained demand for diesel, gasoline, LPG, and jet fuel,” they continued.

“However, the pace of fuel demand growth is expected to decelerate as the government implements measures such as increasing natural gas supplies for the power industry to promote energy transition and reducing fuel demand growth by cutting fuel subsidies,” they went on to state.

The analysts also highlighted in that report that the growing use of biofuels in the transport sector will erode demand for refinery diesel, “undermining long-term prospects for fuel demand growth”.

“We project Indonesia’s total fuel consumption to remain relatively stable at around 1.70 - 1.76 million barrels per day from 2024 to 2026,” the analysts added.

Global Diesel Price

In another BMI report sent to Rigzone by the Fitch Group back in July, BMI analysts revealed that they had revised their average global diesel price forecast downward, “reflecting ample supply-side fundamentals”.

“We project the global diesel price for 2024 to average $96 per barrel versus $115 per barrel in our previous quarterly forecast,” the analysts said in that report.

“We anticipate diesel prices to head lower in Q3 2024 before picking up in Q4 2024 when winter sets in. However, we remain bearish on prices for 2024 since incremental seasonal demand growth will not be sufficient to ease the global supply glut,” they added.

“Our bearish outlook is supported by the continued slowdown in the world’s largest European diesel market and structural weakness in U.S. diesel consumption. Weakening diesel prices across three key trading regions in the first half of 2024 suggest the market remains oversupplied,” they continued.

“There are limited prospects for a strong recovery in diesel prices in Q3 and Q4 2024 as oversupply will continue to drag on prices unless refiners respond by cutting production,” they went on to state.

To contact the author, email andreas.exarheas@rigzone.com


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Andreas Exarheas
Editor | Rigzone