Recently, the International Energy Agency (IEA) released its monthly report indicating a significant slowdown in global oil demand growth, strengthening expectations that demand may peak by 2030. Furthermore, the IEA projects an even weaker outlook for the oil market next year, forecasting supply surpluses every quarter, even if OPEC+ abandons its plans for increased production.

What's causing this? The recent comments from the Head of Commodities at Bank of America might point us in the right direction when he stated that China is approaching or has reached its peak oil demand for two main reasons:

Firstly, we are witnessing for the first time in China that electric vehicle sales have surpassed those of internal combustion engine vehicles, with a ratio of 51% to 49%. This suggests a stagnation in gasoline demand.

Secondly, there has been a reported decline of 10% in diesel demand, as more Chinese trucks transition to using liquefied natural gas, thereby reducing their reliance on diesel.

It is essential to note that gasoline and diesel are the two largest pillars of crude oil demand

In contrast, growth in China is now primarily seen in jet fuel and petrochemicalsIt is noteworthy that China accounted for 50% of global crude oil demand over the past 30 years (data to be verified). Now, this demand is starting to diminish!

However, these insights were not detailed enough previouslyMoreover, the implications for global commodities were not adequately presentedIn this article, I will thoroughly explore the impact of electrification on China’s energy demand.

1. A single country can shape destiny

According to Tonghuashun data, China's crude oil demand has experienced explosive growth over the past 20 years, surging from 220 million tons in 2000 to 768 million tons in 2023.

Correspondingly, China's share of global crude oil demand has risen from 6.18% to 16.96%, coinciding roughly with its population percentage of about 17%.

However, China remains a net importer of crude oil, with a dependency on imports exceeding 70%. Currently, China's daily net crude oil imports hover around 10 million barrels

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This figure has remained stable since 2020, with no significant growth.

This volume is comparable to the export levels of approximately 1.1 Saudi Arabias, 1.3 Russias, and 2 AmericasHence, China's crude oil demand significantly influences global energy prices, similar to how it created 'super bull' and 'super bear' markets from 2001 to 2008. Indeed, regarding demand, China's impact on global crude oil far surpasses that of any other country.

Moreover, China has strong motivations, both from energy security and cost management perspectives, to vigorously develop new energy vehicles and solar power.

Wang Chuanfu of BYD has articulated a concept of 'three 70s' in the context of developing new energy vehicles

He argues that 70% of China's oil is imported, with 70% of that passing through the Strait of Malacca, and 70% being used in transportationIf just 1% of China's desert areas were covered with solar panels, it could power the entire population of 1.3 billion.

Hence, the eventual peak in Chinese crude oil demand seems inevitableThe question is whether the peak has already been reached and whether the decline will have a significant global impact on oil demand.

2. Chinese crude oil demand has peaked

In 2024, China is seeing a notable decline in crude oil imports

In the first eight months of the year, cumulative imports were 367 million tons compared to 378 million tons in the previous year, marking a decrease of 3.1% or approximately 11 million tonsConversely, electricity consumption in China is projected to grow by 8.1% year-on-year in 2024.

Is this attributed to reduced exports from China? Indeed! During the first eight months, finished oil product exports fell by 5.8%. However, the absolute reduction in exports was only about 2.5 million tons, which is significantly less than the 11 million ton decrease in imported crude oil.

Data from CNPC reveals a continuous decline in gasoline and diesel consumption in the first half of the year

Specifically, gasoline consumption fell by 2.67% year-on-year, while diesel dropped by 5.63%. Sinopec's data showed similar trends, with gasoline consumption up by 0.37% but diesel down by 6.81% year-on-year.

Certainly, 2023 marked the first year post-COVID, with a rebound in consumer spending leading to elevated consumption levelsThus, the expected decline in crude oil demand for 2024 appears reasonableHowever, when comparing the first half of 2024 with the unimpacted first half of 2019, it becomes evident that both gasoline and diesel consumption fell below 2019 levels by 11% and 16%, respectively.

Conversely, China's electricity consumption shows remarkable growth, soaring from 600 billion kilowatt-hours in the first half of 2019 to 820 billion kilowatt-hours now, representing a staggering increase of 37%.

This indicates that the proportion of crude oil in China’s overall energy consumption has already peaked, and this trend is likely to continue in the foreseeable future.

3. Global oil consumption peak may be approaching

The decline in Chinese oil consumption can be attributed to two significant factors: the energy transition is driving down oil consumption, while infrastructure investment is entering a downward cycle, leading to a reduction in heavy-duty vehicle energy consumption.

First, let’s consider electric vehicles—the penetration rate has now reached 53.9%, and by the end of June, the number of electric vehicles on the road reached 24.72 million. As the number of electric vehicles increases, gasoline consumption will inevitably decline.

In the first half of this year, BYD launched its fifth-generation hybrid technology, boasting a fuel consumption of only 2.9 liters per 100 kilometers—a significant improvement over traditional combustion engine vehicles! This suggests that even if all future vehicles are hybrids, their demand for crude oil will see a considerable reduction.

Currently, China consumes 400 million tons of refined oil annually for transportation, accounting for 70% of usage or 280 million tons

Given that there are 345 million vehicles in China, if 15 million new electric vehicles are sold each year, it effectively means that around 4% of vehicles are oil-independent annuallyIf hybrids use oil for half of their operations, this signifies at least a 2% reduction in refined oil consumption per year.

Furthermore, the energy transition in heavy-duty vehicles is crucialRecent data indicates sales of electric heavy-duty vehicles reached 6,303 units in August 2024. The new energy heavy-duty vehicle market has seen growth exceeding 100% year over year for six consecutive months, with an average monthly increase of 140% from January to August this year.

In addition to electric heavy-duty trucks, the penetration of natural gas heavy-duty trucks has rapidly increased—from less than 20% in 2023 to over 20% in the first half of 2024, with some months reaching about 30%. According to reports, natural gas and electric heavy-duty vehicles only occupied 24.48% and 5.56% of the market last July, with significant increases to 37.89% and 14.14% in July of this year.

I firmly believe that the trend towards energy transition will not just be restricted to China but will spread globally

The two core reasons are:

On one hand, the cost advantage of electricity is significant; ultimately, national competitions boil down to cost, where energy costs are a critical factorFor example, with the decline in energy costs in Europe, many industries have faced forced shutdowns.

On the other hand, oil needs to be transported from other countries, which incurs transportation costs and is easily subject to disruptionsIn contrast, electricity can be generated and used instantly, while oil requires complex refining processesFrom both security and economic perspectives, a global energy transition is the way forward.

In addition to the acceleration of energy transitions, the decline in traditional construction projects, represented by real estate and infrastructure, is also contributing to lower energy demand, although this trend is not yet prominently visible

Real estate investment is decreasing at a double-digit rateWhile heavy-duty vehicle sales have also declined, they've stabilized due to industrial transportation demands filling the void left by infrastructure projectsAccording to the China Automobile Association, heavy-duty vehicle sales reached 625,000 units from January to August 2024, a slight year-over-year growth of 0.68%.

In conclusion, between the two narratives of declining infrastructure and energy transition, the energy transition has the most substantial impact on energy demand both domestically and globallyIf the US refrains from initiating a double inflation due to expanded monetary policy, oil prices, under the pressure of the energy transition, may experience a prolonged period of sluggish performance.

Currently, OPEC+ is implementing a production cut agreement totaling about 2.2 million barrels per day. The alliance originally planned to ease voluntary production cuts starting in October but postponed this until December