Dynamics of coronavirus effect on China’s oil demand

The slowdown in China’s economy amid coronavirus will weigh on its oil demand.

That said, given that China’s oil consumption per capita is still relatively low there is scope for it to rise in the medium-term as the country becomes richer, reads a report released by Capital Economics.

“In particular, a further increase in demand from the transport sector (the main oil end-user in China) seems likely. Once the coronavirus outbreak is brought under control, the number of flights operated from China should resume its rapid increase, together with the number of Chinese people travelling abroad. Rising car ownership should also support crude demand,” said the company.

“At the same time, advances in living standards and increased demand for consumer goods will probably boost demand for oil to be used in petrochemicals and plastic. Even so, oil consumption also faces some headwinds in the coming years. In particular, fuel efficiency will continue to improve as vehicles become lighter and the latest technologies, such as start-stop engines, become widespread. There is considerable scope for improvement in this area in China, where vehicles are still much less fuel efficient than in Europe or some other Asian countries.”

In the longer term, China’s oil consumption is likely to be hit hard by the shift towards a greener economy, Capital Economics believes.
“In particular, a widespread adoption of electric cars would almost eliminate the main source of oil demand. In addition, efforts to reduce plastic use should also weigh on oil demand from the petrochemicals sector,” reads the report. “All in all, we expect China’s oil consumption to continue to rise rapidly over the next five years, from 14 million barrels per day in 2019 to a peak of around 15.8 million barrels per day in 2025.”

“While demand will probably remain elevated for the rest of the decade, we expect it to decline at a fast pace after 2030 as petrol cars are displaced by EVs. We forecast China’s oil consumption to average just 7.5m barrels per day by 2050.”