How has China managed to go on an oil detox? A report by Bloomberg looks into this mystery and says it’s not a mystery after all.
The report, written by David Fickling, is reproduced here: The biggest conundrum in the world economy right now: How has China managed to go on an oil detox?
As my colleague Javier Blas has written, its sharply declining appetite for petroleum is probably the sing le biggest factor that has kept the crude market balanced since the Strait of Hormuz closed. The perception that China is an opaque and secretive market adds to the mystery. Perhaps the government has been releasing barrels from hidden underground stockpiles, or sparking up secret chemical plants?
A close look at the reams of official data available suggests a more humdrum explanation. Public information and signs of a demand peak that analysts have been pointing out for several years can explain almost all the loss of nearly five million barrels a day in May.
Electric Vehicles: It’s no secret that China’s car and truck markets have been shifting aggressively to batteries. Sales of conventional cars over the past 12 months have been running at their lowest levels since 2010. More than 60% of cars sold in May came with a plug. Rhodium Group, a consultancy, estimated last year this would displace about 670,000 barrels a day, or bpd, over the year through May.
End of the Road: Sales of conventional cars in China are at their lowest level since 2010.
The real numbers appear to be, if anything, a little higher. Economists reckon drivers don’t react much to oil prices, but those assumptions didn’t account for the rise of EVs. If you have a plug-in hybrid, or one conventional and one electric car, you can instantly switch when gasoline gets too pricey. China’s army of dirt-cheap electric taxis also provide a tempting alternative.
Charging data certainly suggest a rapid shift. Public charging in April increased 17% from the previous month, to hit 10.38 terawatt-hours, or TWh, similar to the electricity consumption of the Netherlands. Add the majority of charging that happens at home, and the increase from last year is probably about 8 TWh — equivalent to about 800,000 bpd. Other data back this up: The decline in gasoline and diesel production during April, relative to the average over the previous three years, was almost identical, at 790,000 bpd.
One Word: Plastics
Now let’s look at chemicals. As we’ve written, China’s refiners have pivoted aggressively to making polymers such as polyethylene in recent years to escape the looming decline in road fuel. That’s flooded the global market and threatened the viability of chemical plants from Thailand to Europe.
Then in March, the closure of the Strait of Hormuz shut off supplies of naphtha, a gasoline-like product that’s their main raw material. Japanese naphtha prices doubled, leading to shortages of plastic bags and the introduction of monochrome packaging for prawn crackers. At one point, Asian plants were facing more than $500 of losses on every ton of plastic feedstocks they produced.
The demand reaction was inevitable. Output of primary plastics in China fell at the fastest pace on record in April, a drop of 1.6 million metric tons in a single month. In oil terms, that’s enormous, probably equivalent to about 700,000 bpd.
Gas Bubble: Ethane has turned into one of America’s biggest exports to China
The nature of China’s chemical industry has been changing, too. Ethane, a gaseous byproduct of the US shale boom, has become one of the most-traded goods between the two countries lately. You can make three times more polyethylene from a barrel of ethane than from a barrel of naphtha, so this booming commerce has an outsized impact. Just the increase in US exports to China in March may have reduced oil demand by another 330,000 daily barrels.
Trade and Inventories: One argument used to challenge the story that China’s oil demand was peaking has been its ongoing appetite for oil through 2025. Consumption increased by about 210,000 bpd, according to the Organization of the Petroleum Exporting Countries, equivalent to the whole of Africa, or almost double all developed countries put together.
But much of that was just stockpiling for its huge strategic inventories. Throughout 2024 and 2025, China pumped or imported about 1.4 million bpd more than its refineries consumed. Some of that may just be statistical anomalies, but even the US Energy Information Administration estimates a 1.1 million bpd excess.
