For two decades, the single most reliable source of growth in world oil demand was China's appetite for gasoline and diesel. That era is ending sooner than most forecasters expected. In August 2024, Chinese gasoline consumption averaged an estimated 3.2 million barrels a day, 14 per cent less than in August 2023, according to the US Energy Information Administration, and the decline continued in September and October. Diesel turned first. In June 2024, consumption was an estimated 3.9 million barrels a day, 11 per cent below June 2023 and the largest year-on-year fall for any month since July 2021.
These are not pandemic distortions. The lockdown era ended in late 2022, and 2023 set new highs for both fuels. The falls in 2024 reflect structural change in what Chinese drivers buy, how freight moves and how fast the economy is growing.
Gasoline: the electric car effect arrives
The EIA identifies three causes for weaker gasoline demand: rising sales of battery electric and hybrid vehicles, a declining population, and slower economic growth.
The first is the most dramatic. Combined sales of hybrids, plug-in hybrids and battery electric vehicles exceeded half of all passenger vehicle sales in China in October 2024, according to Bloomberg data cited by the EIA, up from 40 per cent a year earlier. When more than half of new cars are electrified in some form, the effect on fuel demand builds year after year as older petrol cars are scrapped.
That effect is cumulative. A single year of high electric vehicle sales changes only a small share of the fleet. Several years in a row change the fleet's composition, and with it the trajectory of gasoline demand. China is now several years into that process, and the decline in gasoline use is the first clear sign that the fleet has shifted far enough to matter.
The macroeconomic backdrop reinforces the trend. The EIA cites an Oxford Economics forecast of 4.1 per cent GDP growth for China in 2025, against an average of 6.7 per cent from 2015 to 2019. Slower income growth means fewer new car buyers and less discretionary driving.
Diesel: property, trucks and LNG
Diesel's decline has different roots. It began in the second quarter of 2024, after consumption reached an all-time high in 2023. The EIA attributes the fall mainly to weaker activity in construction and property, which are diesel-intensive sectors because of the trucks, excavators and other machinery they use. China's GDP grew 4.7 per cent year on year in the second quarter of 2024, a little below the government's 5 per cent target and several points below its pre-pandemic pace.
The second cause is fuel substitution in trucking. According to BloombergNEF data cited by the EIA, LNG trucks made up around 20 per cent of total truck sales from the third quarter of 2023 through March 2024. The LNG truck fleet is still small relative to the total, but at that share of new sales it grows quickly.
Substitution of this kind is sticky. A truck bought to run on LNG will burn LNG for the rest of its working life, typically many years, so each quarter of strong LNG truck sales removes diesel demand well into the future. The same logic applies to passenger cars: the fuel choice is locked in at the point of sale, which is why sales shares matter more than any single month of consumption data.
Petrochemicals take over
If road fuels are no longer growing, where does Chinese oil demand growth come from? The EIA's answer is petrochemical feedstocks. In its latest outlook, it expects China's petroleum and liquid fuels consumption to grow by only about 0.1 million barrels a day in 2024 and 0.3 million barrels a day in 2025, mostly from feedstocks for petrochemical manufacturing rather than transport fuels. Both figures are well below the 2015 to 2019 average of 0.5 million barrels a day.
That shift is consistent with how China has built its refining system. Refinery runs reached a record 14.8 million barrels a day in 2023, and much of the new capacity is integrated with petrochemical plants designed to turn more of each barrel into naphtha, LPG and other chemical inputs. Chinese refiners are positioning for a future in which fuels decline and chemicals grow.
But petrochemical demand is a weaker engine for oil growth than road fuel ever was. Chemical demand depends on manufacturing and exports, which are cyclical, and Asian petrochemical margins have been low or negative since 2022 as Chinese capacity outpaced demand. Feedstock growth is real, but it is unlikely to match the scale of the gasoline and diesel boom.
Implications for world oil
China accounted for a large share of global oil demand growth for most of the 2000s and 2010s. A China whose transport fuel use has peaked changes the global picture. Growth in world oil demand will depend increasingly on India, Southeast Asia, the Middle East and Africa, and on aviation and petrochemicals rather than on road transport in the largest emerging economy.
For oil exporters, especially those in the Gulf that sell heavily to China, the signal is clear. Chinese crude imports may still rise for some years, as refiners feed new petrochemical complexes and the state builds stocks, but the underlying driver has changed. Product exports from Chinese refineries may also rise, if Beijing allows them, as domestic fuel demand falls and refineries look for outlets.
For Chinese policy, the decline in fuel demand is a vindication of years of support for electric vehicles. It reduces import dependence, lowers urban air pollution and supports a domestic industry that now leads the world. It also creates a challenge for refiners that built capacity for a fuel market that is now shrinking.
What refiners do next
Chinese refiners face a choice about how to respond. One option is to run harder for export, but product exports are governed by quotas, and Beijing has historically used them to balance the domestic market rather than to maximise refinery utilisation. A second is to keep shifting yields toward chemicals, which suits the newest integrated complexes but does little for older fuel-oriented plants. A third is consolidation, with smaller and less efficient refineries closing as margins tighten. In practice all three are likely to happen at once, and the pace will depend on policy as much as on markets.
A peak to be confirmed
One year of decline does not prove a permanent peak. A cyclical recovery in construction could lift diesel demand again, and a policy push to stimulate consumption could raise driving. But the forces behind the gasoline decline, in particular, are structural and will strengthen as the electrified share of the fleet rises. On current trends, 2023 may stand as the high-water mark for Chinese road fuel demand, reached years earlier than most long-term outlooks assumed.