China’s slowdown is weighing on the outlook for global oil demand growth

Amid an abrupt deceleration in Chinese oil consumption, global demand growth is cooling sharply from the rates seen in recent years, which we have been projecting since our first forecast for 2024 was published in June 2023. World oil demand is on course to increase by 900 000 barrels per day (b/d), or 0.9%, in 2024 and 950 000 b/d next year, down from 2.1 million b/d, or 2.1%, in 2023.

Monthly data reported by countries representing 80% of global oil demand for the first six months of 2024 are now available. The data confirm the sharp slowdown in the rate of growth in oil consumption. Global demand rose by 800 000 b/d, or 0.8%, year‑on‑year during the first half of the year.

The recent downturn in China has been even more acute than expected, with oil demand in July declining year‑on‑year for a fourth consecutive month. At the same time, growth outside of China is tepid at best. This weaker demand environment has helped fuel a sharp sell-off in oil markets. Brent crude oil futures have plunged from a high of more than $82 per barrel in early August to near three-year lows at just below $70 per barrel on 11 September.

China has been the cornerstone of the growth in global oil demand so far this century. Dynamic factory activity, massive infrastructure investments and rising prosperity across a population of over 1 billion people driving what has, at times, felt like an inexorable expansion in oil consumption. Over the past decade, the annual increase in Chinese oil demand has averaged in excess of 600 000 b/d, accounting for more than 60% of the total global average increase. Moreover, China’s share of global demand growth has expanded since the pandemic. This year, demand outside China will remain 0.3% below 2019 levels, but in China, consumption will be 18% higher.

China’s exceptional position in global oil markets has been shaped by its model of development since the late 1970s – led by domestic investment and exports – which has driven diesel/gasoil and petrochemical demand. A rising population and increasing prosperity have propelled the use of personal mobility fuels like gasoline. However, mounting demographic headwinds, with the national population declining in 2022, are set to limit future increases. Additionally, patterns of investment are changing so that they now serve to constrain key forms of oil consumption.

Chinese oil demand is currently firmly in contraction, falling by 1.7%, or 280 000 b/d, year‑on‑year in July, a marked contrast with the 9.6% average pace of growth in 2023. Accordingly, we expect annual growth of only 1.1%, or 180 000 b/d, in 2024.

Burgeoning domestic sales of vehicles powered by alternative fuels are cutting into oil demand for road transport, while the development of a vast national high-speed rail network is constraining growth in internal air travel. The market share of battery and plug-in hybrid electric vehicles in China has grown strongly in recent years. In July and August, more than half of all cars sold in China were electric, and a substantial share of new trucks now use natural gas or electricity. We expect these changes to displace about 400 000 b/d of oil demand growth this year alone.

Slowing construction investment amid a prolonged real estate slump is also weighing on demand. Building activity is gradually declining as ongoing projects are completed because new starts have fallen sharply since 2021. This particularly impacts gasoil, which is the major fuel for construction equipment and transport of materials. Overall gasoil demand fell by almost 5% year‑on‑year in the second quarter of 2024. Weaker demand for plastics, used in construction and manufacturing, is reflected in lower naphtha intake. This was down by 2% year‑on‑year in the second quarter, despite continued large-scale petrochemical capacity expansions. About three-quarters of Chinese oil demand growth between 2019 and 2023 was in petrochemical products, and their share is set to increase further this year and next.

China’s centrality to global oil demand growth this century has been so great that the precipitous slowdown in growth this year raises significant questions about the future global trajectory. If China’s long upsurge is really losing momentum, and with demand in advanced economies currently at the same level as in 2014 and set to decline, questions arise over whether other countries or regions could replace China as the engine of global oil demand growth.

Owing to their size and relative dynamism, other Asian economies are most likely to lead gains going forward, but it seems unlikely that they will fully replicate China’s role over the last two decades. Oil demand in emerging and developing Asian economies, excluding China, grew by 2.5 million b/d between 2013 and 2023. This was well below China’s 6 million b/d over the same period but highlights the comparatively large potential for further growth. In Oil 2024, our medium-term report published in June, we projected that between 2023 and 2030, the rest of emerging Asia would see oil demand rise by almost 3 million b/d, twice as much as in China over that period.

India, which is now set to have the largest annual growth in oil consumption in 2024, at 200 000 b/d, is projected to account for almost half of the medium-term increase in emerging Asia. Despite being the world’s fastest growing major economy, India’s comparatively limited overall use of oil – at only one-third of China’s level in 2024 – and the smaller role of manufacturing, construction and petrochemicals in its economic model will curb growth in oil consumption. This is also the case in the major Southeast Asian economies.

Moreover, in the event of a sustained Chinese economic slowdown, activity across Asia would unavoidably be impacted. If the current economic weakness in China persists, or even deepens, it raises the prospect of a period of reduced global oil demand growth.

Elsewhere, the potential for increased oil use is smaller. Demand in Africa grew by a mere 380 000 b/d between 2013 and 2023, equivalent to just 8 months of China’s average growth rate over the same period. The increase in the Middle East was equal to less than 10 months of China’s growth, while Latin American oil demand was essentially flat.

This year’s deceleration may mark the start of a period of progressively more sluggish gains in oil consumption, as major technological, behavioural and demographic shifts cause demand to decouple from underlying GDP. With the steam seemingly running out of Chinese oil demand growth, and only lacklustre increases or declines in many other countries, current trends reinforce the expectation of global demand plateauing by the end of this decade.