US EIA reports that China's diesel consumption fell by the most in three-years in June.

The U.S. Energy Information Administration reported on Thursday that China's demand for diesel fell 11% over the past year, to 3.9 millions barrels of fuel per day, which is the largest percentage decline since July 2021.

Why it's important

The slowdown in fuel demand has put pressure on the oil market this year. This has unnerved investors who bet that China would continue to be an engine of growth.

This week, the Organization of Petroleum Exporting Countries (OPEC) lowered its oil demand forecast for 2024 citing lower expectations for China. It was the first time since the outlook had been published more than a year earlier that the outlook has been lowered. The Paris-based International Energy Agency also cut its forecast for 2025, citing a weak Chinese economic climate.

CONTEXT

According to the EIA, diesel consumption in China reached a record high last year. However, demand has been declining sharply since the 2nd quarter of this year.

EIA said that the slump was largely caused by two factors: the weakening property sector in the country has slowed the economic growth, and the use of liquefied gas instead of diesel is increasing among heavy-duty trucks.

The EIA reported that "aside from the reduced use of diesel due to the slowdown in economic activity, a growing portion of China's trucking sector is using LNG as fuel instead of diesel,"

By the Numbers

Data from Chinese information provider CV World shows that sales of trucks powered by LNG increased 307% last year to 152,000. The consultancy FGE predicts that LNG will replace between 110,000 and 120,000 bpd in diesel demand this year and next.

This has led to a struggle for Chinese refineries. Official data shows that oil refinery production in July was down 6.1% compared to a year earlier, for the fourth consecutive month. (Reporting from Shariq Khan, New York; editing by Rod Nickel.)

(source: Reuters)