Gloomy Prospects Ahead: China's Economic Slowdown Dampens 2023 Diesel Demand Predictions

The article discusses the impact of China's muted economic growth in 2023, primarily due to the underwhelming post-COVID recovery, on the demand for diesel fuel. The struggling economy has led to reduced consumption of diesel, a crucial oil product for the Chinese economy. Several key points and insights from the article include:

1. Lowered Diesel Demand Forecast: Rystad Energy has revised its forecast for China's diesel demand for the latter half of the year (July to December) to 3.81 million barrels per day (bpd), down from an earlier projection of 3.9 million bpd. This downward adjustment reflects the challenges faced by China's economy, including slowing construction and declining exports.

2. IEA's Expectations: The International Energy Agency (IEA) anticipates a decrease in China's gasoil consumption for the second half of the year by 150,000 bpd compared to the second quarter of the year. This reduction aligns with the struggling economic conditions affecting various sectors.

3. Reasons for Reduced Demand: The weakened demand for diesel is attributed to the slowdown in the property sector, which is a significant consumer of diesel for construction and machinery. Additionally, dwindling exports and a global economic downturn have contributed to lower manufacturing activity and subsequently reduced diesel demand.

4. Refining Operations and Excess Supply: Despite the decreased demand, Chinese refiners have continued to operate at high rates, leading to excess supply. This excess supply has resulted in rising diesel inventories, which increased by 9% from January to June. This phenomenon is reminiscent of similar inventory levels during the COVID-19 lockdowns in 2020.

5. Challenges for Refiners: China's refiners are grappling with systemic issues, particularly the struggling property sector and the decline in external demand due to the global economic downturn. These factors have limited growth in diesel demand.

6. Exports: Chinese refiners have sought to capitalize on high profit margins for diesel in Asia by significantly increasing their overseas exports in the first half of the year compared to 2022. However, these exports are contingent on the issuance of new export quotas from Beijing.

7. Export Quotas: China has issued oil product export quotas totaling 27.99 million tons in 2023. The majority of these quotas have already been utilized by refiners, with 33% being used for diesel exports. There is anticipation that Beijing will issue new quotas for the remainder of 2023, potentially facilitating further exports.

In summary, China's subdued economic growth and challenges in various sectors have led to reduced demand for diesel fuel. This trend is expected to persist into the near future, impacting sectors such as construction, manufacturing, and exports. Despite these challenges, Chinese refiners are adapting by increasing overseas diesel exports, subject to government quotas.

Source : Reuters (Reporting by Andrew Hayley and Trixie Yap)