China Urges Refiners to Switch From Fuels to Petrochemicals

Chinese refiners should reduce fuel production in favor of more petrochemicals, the country’s central planning agency said in its annual report.

“We will advance petrochemical industries toward fine chemical industries by cutting the output of refined petroleum products, increasing the output of chemical products, and enhancing quality,” the National Development and Reform Commission said, as quoted by Bloomberg.

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China’s demand for fuels has been undermined by the surge in EV sales in recent years and the introduction of LNG-powered trucks, which may have led to a peak in diesel demand, according to Sinopec. The state energy major said that diesel demand may have peaked back in 2019, and gasoline demand could have reached its highest ever in 2023.

According to the International Energy Agency, all fuel demand in China may have already peaked. The agency cited 2024 that showed the consumption of gasoline, gasoil, and jet fuel in China had averaged 8.1 million barrels daily. This was 200,000 bpd lower than the average daily consumption of the three fuels in 2021—but it was marginally higher than 2019 demand levels.

Weaker oil imports so far this year seem to support the view that oil demand in the world’s largest importer may be peaking. However, it seems that the reason for the import weakness is not so much organic demand as prices, driven higher by the Biden administration’s parting sanction volley at Russia.

The Biden sanctions on Russian oil trade and shadow fleet crippled the supply of ESPO crude, which has been a favorite with Chinese refiners. Yet the scores of oil tankers sanctioned by the U.S. slashed the availability of non-sanctioned tankers to ship the crude to China and that led to significantly higher transportation costs that sapped demand for the crude and ultimately contributed to lower crude oil imports.

By Irina Slav for Oilprice.com

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