Michael Hsueh, Research Analyst at Deutsche Bank, suggests that Chinese oil demand growth has accounted for an average of 35% of world oil demand growth since 2000 and based on public agency and industry forecasts this trend is expected to continue with China making up more than a third of world oil demand growth to 2035.
Key Quotes
“However, we believe that oil demand growth from the passenger vehicle sector, which has made up 66% of Chinese total oil demand growth since 2010, may slow in the medium term and then begin to decline by 2024. This casts doubt over the capacity for continued long-term oil demand growth at current trend rates in China, and by extension, the world.
Importantly, we need not make any strong assumptions regarding growth in electric vehicle market share in order to reach these conclusions although a high battery electric vehicle scenario results in 1 mmb/d lower Chinese oil demand in 2035 as compared with our central scenario.
The key underlying drivers are the size of the passenger vehicle fleet, its utilization in annual kilometers traveled, and its fuel efficiency. We take projections of these drivers from the IEA, US DOE, and the Chinese government, respectively, in order to develop the central scenario. Beyond the Chinese government 2020 target we assume that further efficiency gains are in line with the Global Fuel Economy Initiative target to 2030.
Our key finding is that Chinese oil demand growth, the largest single contributor to world oil demand growth, may begin to flatten more quickly than some long-term projections indicate. All else remaining equal, this could result in world oil demand growth falling from its 2000-2016 trend of 1.1 mmb/d yoy to only 800 kb/d yoy by 2024.
Our analysis implies potential downside risks to more ambitious oil demand growth projections (EIA, BP) although transport and petrochemical demand gains would make up part of the difference, likely making lower projections (IEA) achievable.
Risks to the view are the potential for shortfalls in efficiency gains versus the government target, higher-than-expected utilization, and more rapid growth in the vehicle fleet.
In the context of today's producer struggle for market share and process of fundamental rebalancing, there are risks that the end of the current phase of oversupply may be followed by the beginning of an emerging period of weaker demand growth, thereby limiting oil price gains above equilibrium in the longer term.”
