In the past two days, the International Energy Agency (IEA) monthly report indicated that global oil demand growth is "sharply slowing down," reinforcing expectations that demand will peak before 2030.
The IEA even pointed out that the outlook for the oil market next year is even weaker, and even if OPEC+ abandons its plan to increase production, there will still be a supply surplus every quarter.
Why is that?
A recent interview with the head of commodities at Bank of America may have pointed us in the right direction.
He said that China is approaching or reaching its peak in oil demand for two reasons: First, for the first time in China, we have seen electric vehicle sales surpass those of oil-powered vehicles, with a ratio of 51% to 49%.
This means that China's gasoline demand will level off.
Second, we have seen a 10% decline in China's diesel demand because more and more Chinese trucks are turning to liquefied natural gas as fuel, relying less on diesel.
We must understand that the two biggest pillars of crude oil demand are gasoline and diesel, and China now only has aviation fuel and petrochemicals growing.
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Please note that China has accounted for 50% of global crude oil demand over the past 30 years (data to be verified).
Now, this oil demand is disappearing!
1.
A country can determine the world's situation.
Data from Tonghuashun shows that over the past 20 years, China's crude oil demand has seen explosive growth, with annual crude oil demand increasing from 220 million tons in 2000 to 768 million tons in 2023.
Correspondingly, China's share of global crude oil demand has also risen from 6.18% to 16.96%.
This is somewhat similar to China's global population share (17%).
However, China is a net importer of crude oil, with a dependency on foreign crude oil exceeding 70%.
The latest data shows that China's daily net import of crude oil is about 10 million barrels.
Moreover, this figure has stopped growing since 2020 and has been hovering around 10 million barrels per day.
This is equivalent to the export volume of 1.1 Saudi Arabias, 1.3 Russias, and 2 United States.
China's crude oil demand will have a significant impact on global energy prices, just as China did from 2001 to 2008, creating a super bull market and a super bear market.
It can be said that in terms of demand, China's impact on global crude oil exceeds that of any country.
Moreover, from the perspectives of both energy security and energy costs, China has the motivation to vigorously develop new energy vehicles and photovoltaics.
Wang Chuanfu of BYD, when developing new energy vehicles, mentioned a concept of three 70%.
He believes that 70% of China's oil relies on imports, 70% of imported oil has to pass through the Malacca Strait, and 70% of oil is used in the automotive industry.
If 1% of China's desert areas are covered with solar photovoltaic panels, it can solve the electricity problem for 1.3 billion people nationwide.
Therefore, it is only a matter of time before China's crude oil energy demand peaks, the question is: Has it already peaked?
Will the reduced volume have a significant impact on global crude oil demand?
2.
China's crude oil demand has peaked.
In 2024, China's crude oil imports showed a significant decline.
In the first eight months, a total of 367 million tons were imported, while in the first eight months of the previous year, China imported 378 million tons, which means that in the first eight months, China's crude oil imports fell by 3.1% year-on-year, about 11 million tons less.
In 2024, China's electricity consumption grew by 8.1% year-on-year.
So, is it because China's exports have decreased?
It turns out that it is!
In the first eight months, China's refined oil exports decreased by 5.8%!
However, in terms of absolute volume, the reduced export volume is only about 2.5 million tons, which is still far less than the 11 million tons of crude oil import reduction.
I looked at the data from PetroChina, and in the first half of the year, both gasoline and diesel consumption showed a continuous decline.
Among them, gasoline consumption fell by 2.67% year-on-year, and diesel fell by 5.63% year-on-year.
Sinopec is similar, with gasoline up by 0.37% year-on-year, and diesel down by 6.81% year-on-year.
Of course, 2023 was the first year after the epidemic was lifted, and the rebound in consumption led to a high base in 2023, and it seems reasonable that crude oil demand fell in 2024.
However, when we compare the first half of 2024's data with the first half of 2019's data, which were not affected by the epidemic, we found that in the first half of 2024, China's gasoline and diesel consumption were both lower than in the first half of 2019, down by 11% and 16% respectively.
And the comparison of China's electricity consumption during the same period may surprise you: China's total electricity consumption has grown from 600 billion kilowatt-hours in the first half of 2019 to 820 billion kilowatt-hours, an increase of 37%.
That is to say, if we look at the proportion of crude oil energy consumption, the proportion of crude oil in China's energy consumption has already peaked, and this trend will continue in the foreseeable future.
3.
The global peak in oil consumption may be approaching.
There are two major reasons for the decline in China's crude oil consumption: one is the energy transition, which has led to a reduction in crude oil consumption, and the other is the infrastructure entering a downcycle, leading to a decline in heavy-duty truck energy consumption.
Let's first talk about new energy vehicles, the latest domestic penetration rate has reached 53.9%, and as of the end of June, the number of new energy vehicles has reached 24.72 million.
As time goes on, the number of new energy vehicles will increase, and the consumption of gasoline will decrease.
In the first half of this year, BYD announced its fifth-generation super hybrid technology, with a fuel consumption of 2.9L per 100 kilometers, far lower than the fuel consumption level of traditional oil vehicles!
That is to say, even if all the new electric vehicles added in the future are plug-in hybrids, they will have a significant downward impact on the demand for crude oil.
Now China consumes 400 million tons of refined oil per year, with 70% used for automotive fuel, that is 280 million tons.
China now has 345 million vehicles, and if we calculate that 15 million new energy vehicles are sold each year, that is, 4% of the vehicles do not use oil each year, and if plug-in hybrids use oil for 50% of the time, then it means that at least more than 2% of refined oil consumption can be reduced each year.
Not only the existing plug-in hybrids, but also the energy transition of heavy-duty trucks is very critical.
According to the latest data from the First Commercial Vehicle Network, in August 2024, a total of 6,303 new energy heavy-duty trucks were sold in China.
The new energy heavy-duty truck market has been growing at an annual rate of over 100% for six consecutive months, with an average monthly increase of 140% from January to August this year.
In addition to new energy heavy-duty trucks, the penetration rate of natural gas heavy-duty trucks is also rising rapidly, from less than 20% in 2023 to more than 20% in the first half of 2024, and even reaching around 30% in some months.
Data shows that the proportion of natural gas heavy-duty trucks and new energy heavy-duty trucks was only 24.48% and 5.56% respectively in July last year, and increased to 37.89% and 14.14% respectively in July this year.
I believe that the trend of energy transition will not only be in China, but will also spread globally in the future.
Two reasons: on the one hand, the price advantage of electricity is indeed very obvious, and the competition among countries is ultimately about cost, and energy cost is a very important part.
Take Europe as an example, after the Russia-Ukraine war, Europe's energy costs have declined, and many industries have been forced to shut down; on the other hand, no matter how good the crude oil is, it also needs to be transported from other countries, transportation requires costs, and it can easily be cut off from energy, and electricity can be directly used for direct energy, and electricity can be directly used, while crude oil still needs to go through complex refining, which small countries cannot bear.
From the perspective of security and economy, the global energy transition is the general trend.
In addition to the acceleration of energy transition, China's traditional construction projects represented by real estate and infrastructure are declining, which is driving the decline in related energy demand.
However, at present, it is not obvious enough.
Real estate investment is declining at a double-digit rate.
However, although the sales volume of heavy-duty trucks has also declined, it has stabilized because industrial transportation demand has filled the gap in infrastructure.
According to data released by the China Automobile Industry Association, from January to August 2024, the cumulative sales of domestic heavy-duty trucks reached 625,000 vehicles, with a year-on-year increase of 0.68%.
Therefore, in the two major logics of infrastructure and energy transition, the impact of energy transition on domestic and global energy demand is the greatest.
If the United States does not expand its balance sheet to form a second inflation in the future, then under the suppression of energy transition, crude oil prices may experience a relatively low period.
OPEC+ is currently implementing a production reduction agreement of about 2.2 million barrels/day, and the alliance originally planned to relax voluntary production cuts from October, but last week postponed the production increase to December.
In addition, some non-OPEC countries, such as Brazil and Libya, are also increasing crude oil production.
Under the background of strong supply and weak demand, crude oil will be very difficult overall.
And crude oil is the mother of commodities, if the price of crude oil continues to decline, many commodities will appear cost collapse, repeating the end of 2015's commodity.