According to a report by the Financial Times, China, the world’s largest oil importer, may be approaching peak oil demand sooner than expected—a trend that could have far-reaching consequences for global oil markets.
Amin Nasser, CEO of Saudi Aramco, has long viewed China as a crucial customer, with the value of Saudi oil exports to China reaching a record $56 billion in 2022. Over the past decade, Saudi Arabia has supplied nearly one in six barrels of its oil to Chinese refineries, underpinned by China’s rapid economic growth and industrialization. However, recent data suggests that China’s oil demand could be plateauing, potentially signaling the end of an era for oil producers who have relied on the country’s insatiable thirst for crude.
In a concerning development for global oil markets, China reported a near 2% decline in its oil imports for 2024, falling to just over 11 million barrels per day (bpd). This marks the first such decrease in two decades, excluding the disruption caused by the COVID-19 pandemic. Experts attribute the decline to China’s economic challenges, including a property crisis that has slowed construction, reducing demand for diesel and petrochemicals. Additionally, longer-term structural changes are at play, with trucks shifting from diesel to liquefied natural gas (LNG) and the rising popularity of electric vehicles (EVs) impacting demand for petrol and diesel.
The trend has profound implications for global oil demand projections. The International Energy Agency (IEA) has previously forecast that global oil demand could peak before 2030, and China reaching peak oil would align with that timeline. If Chinese demand stagnates, it could significantly alter the trajectory of oil consumption, particularly since China has accounted for about half of global oil demand growth over the past three decades.
The consequences of this shift are already being felt in the oil market. Despite geopolitical tensions, including crises in the Middle East and the ongoing war in Ukraine, benchmark Brent crude ended 2023 at just over $74 a barrel, reflecting a narrow trading range. Analysts, including Martijn Rats of Morgan Stanley, caution that if China’s oil imports continue to slow, it could lead to a fundamentally different market, with softer oil prices and potentially less incentive for companies to invest heavily in new oil exploration.
While some analysts are hesitant to declare an immediate “peak oil” for China, others argue that it is becoming increasingly clear that the country’s demand is leveling off. For example, Sinopec, China’s largest refiner, recently brought forward its estimate for peak oil consumption to 2027, a revision from its previous forecast of 2026-2030.
The situation has sparked debate among industry players. While Meg O’Neill, CEO of Woodside Petroleum, emphasizes that it is too early to declare peak oil in China, pointing to the country’s continuing economic aspirations, Saudi Aramco’s Nasser remains optimistic. He believes that despite signs of slowing demand, China still shows strong growth potential, citing the country’s burgeoning renewable energy industries that still require significant amounts of oil for production.
As global oil producers, particularly those in the Middle East, adjust to these new dynamics, they will also need to contend with rising competition from other emerging markets like India. OPEC has forecast that India will become the primary driver of oil demand growth, although its consumption levels still lag behind China.
The implications of China’s potential peak oil are far-reaching. Analysts warn that oil-exporting countries must adapt to a future where demand growth may be slower than previously anticipated. As the IEA notes, if global oil consumption plateaus or declines, oil producers may face a dramatic reduction in revenue, reshaping the global energy landscape.
This shift in demand, if confirmed, could represent a tectonic change for the oil market, which has long been driven by China’s rapid industrialization. While the full impact remains to be seen, the world may soon be entering a new era in which oil demand grows at a much slower pace than it has over the past 30 years.
