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China’s apparent oil demand set to slow down after high growth in 2017

China’s apparent oil demand rose 5.5% year on year to 11.77 million b/d in 2017, but analysts said that they expected rising crude prices and an anticipated slowdown in economic growth to take a toll on consumption of oil products.

In addition, as China focuses more on quality and energy efficiency, analysts said that policy changes would also cap oil consumption.

S&P Global Platts China Oil Analytics expect the apparent oil demand to rise by 500,000 b/d in 2018, equivalent to a year-on-year growth of 4.2%.

This is in line with forecasts by Sinopec’s and CNPC’s research institutes, saying that oil demand growth would slow from over 5% last year to over 4% in 2018.

CNPC’s institute expects oil demand growth to slow from 5.9% to 4.6%, based on the assumption that China’s GDP would grow 6.7% in 2018, slower than the government target of 6.9% for 2017.

“Higher oil prices and weaker GDP growth will inevitably lead to weaker oil demand,” Bernstein said in a report.

“The focus is shifting from quantity to quality and (from) economic growth to environment,” it added. “This means energy consumption would be capped due to improving energy efficiency and tight environmental control.”

LPG DEMAND TO FALL

The growth in oil products consumption in 2017 was led primarily by strong growth in LPG and bottom-of-the-barrel fuels, including fuel oil, S&P Global Platts calculations based on official data showed.

China’s apparent demand for LPG rose 8.4% on the year in 2017 to 1.71 million b/d. The 133,000 b/d year-on-year increase accounted for 22% of the country’s total growth in apparent oil demand, which was at 615,900 b/d.

However, demand growth for LPG is estimated to slow to 6% in 2018 due to weakening demand from MTBE plants. China is promoting the use of E10 gasoline containing 10% ethanol, which will gradually replace MTBE.

Two new PDH plants will come online this year, which will increase total propylene production capacity by 700,000 mt/year, lower than the 830,000 mt/year of incremental propane demand added in 2017.

Meanwhile, demand for fuel oil is expected to continue to be strong in 2018, driven by growing bunker demand, while refinery feedstock demand is expected to recover because of tighter tax monitoring.

In 2017, apparent demand for fuel oil jumped 11.2% on the year to 797,000 b/d.

Bonded bunker fuel oil supplies from Zhoushan port in eastern Zhejiang province surged 30% year on year to 2.4 million mt in 2017, making it the largest bunkering port in China, according to the provincial communication department.

GASOLINE UNDER PRESSURE

Gasoline demand is expected to see downward pressure in 2018 because of growth in alternative and renewable fuels, expansion of vehicle sharing, and rising ethanol-based gasoline supply.

Expansion of high-speed rail networks would also hit gasoline and jet fuel demand.

COA said that gasoline demand growth was expected to fall to less than 150,000 b/d year on year in 2018, compared with around 200,000 b/d in 2017.

Sinopec’s research institute has estimated the supply of gasoline blending components to see slower growth of around 3% in 2018 amid changes in tax monitoring rules, down 8 percentage points from 2017.

Sinopec’s research institute has estimated the supply of gasoline blending components to see slower growth of around 3% in 2018 amid changes in tax monitoring rules, down 8 percentage points from 2017.

China’s apparent gasoline demand edged up 0.8% on the year to 2.85 million b/d in 2017, S&P Global Platts calculations showed.

For gasoil, some analysts said that growth would be stronger in 2018, while the others said that it would be weaker, compared with 3.4 million b/d, up 1.5% or 50,000 b/d, in 2017 after declining 5.3% in 2016.

COA expects gasoil demand to grow by 74,000 b/d, or 2.1%, in 2018.

CNPC’s research institute expects gasoil demand to fall by 0.2% in 2018, after a 2% rise in 2017, mainly due to the downturn in the real estate market and the switch to natural gas-fueled trucks.

“The growth seen in 2017 was due to the low base in 2016, which is hard to repeat in 2018,” said a product trader with CNPC.

ROBUST NAPHTHA

China’s naphtha demand will be closely watched in 2018 as new reformers and a steam cracker in independent and state-owned refineries are set to commence operations, bolstering demand for both heavy and light naphtha.

CNOOC and Shell Petrochemicals Company Limited, or CSPC, plans to start a new naphtha-fed steam cracker, which is estimated to consume more than 300,000 mt/month of light naphtha once it starts normal operations, a company source said.

COA expects China to increase naphtha consumption by 40,000 b/d, or 4%, on the year in 2018. It would be higher than the growth of 3.3% seen in 2017, when total apparent demand was 1 million b/d.

For jet fuel, analysts expect slower apparent demand growth in 2018 due to the relative high base in 2017.

China’s jet fuel apparent demand rose 9.6% on the year to 826,000 b/d in 2017, S&P Global Platts calculations showed. COA expects jet fuel demand to grow by 39,000 b/d in 2018, slower than the 50,000 b/d increase in 2017.
Source: Platts

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