Prolonged Trade War May Wipe Out 50% Of China's Oil Demand Growth

Forbes

21-04-2025

Tugboats push a crude oil tanker to a reception terminal operated by Sinopec Group on January 30, ... More 2023 in Zhoushan, Zhejiang Province. China.
The wider oil market sentiment continues to be bearish given the possibility of a global trade war, potential recessionary headwinds in major demand centers and higher crude production. But the first of these three factors could have an outsized impact on China, according to one market analysis outfit.
In a note to clients on Monday, Rystad Energy said a prolonged trade war carries the potential of wiping out half of China's oil demand growth. Were such a scenario to materialize, the slump in global oil prices will likely be inescapably huge.
Should downside risks to the country's outlook materialize, Rystad's analysis points to China's projected 2025 oil demand growth of 180,000 barrels per day falling by 50%,
'The ongoing trade war has upended markets' global economic outlook, hitting commodity prices and changing the oil demand outlook. The uncertainties of U.S. President Donald Trump's tariff policies disrupted the markets' original trajectory and posed concerns over the macro economy and demand outlooks,' Rystad told clients.
Before Trump Tariffs introduced a seismic shock to the global economy, China's Q1 2025 GDP growth beat expectations at 5.4%, together with other macroeconomic indicators showing growing signals such as exports, the Purchasing Managers' Index and retail sales.
'Strong economic growth in Q1 was also based on last September's stimulus taking effect gradually,' Rystad observed. 'But assuming trade relations between China and the U.S. remain disrupted, we expect a mild scenario is very likely for this year, with China's GDP growth slowing down by one percentage point.'
The impact of slower GDP growth on Chinese oil demand growth would be a deceleration of 0.47 of a percentage point, as the economy is still relatively industry- and export-driven, it added.
'With the country set to announce more stimulus in the face of the trade war, we expect some upside potential to offset the negative impact from the trade war and mitigate the oil demand growth loss. Overall, the current estimate indicates a loss of 90,000 bpd growth in oil demand from 180,000 bpd levels.'
The research outfit reckons the biggest loss will likely be in diesel and biggest gain in naphtha which may offset 'some' demand loss.
Unsurprisingly, petrochemical and diesel demand will bear 'the most downside pressure because of the trade war', as consumer spending and industry prosperity and industry-related transportation will be 'damaged' by potential trade decline.
The country's domestic petrochemical feedstock demand could be supported by less dependence on imports amid the elevated tariffs.
'Liquefied petroleum gas demand growth will slow down with a shift towards naphtha demand upside as a potential utilization rate increase of steam crackers will offset the loss from propane dehydrogenation [or 'PDH'] as propane relies on external supply.'
But around 100,000 bpd of propane demand will be at risk if the trade war sustains and PDH operators are unable to pivot, with the U.S. dominating supply, Rystad added.
Domestic gasoline and jet fuel demand, strongly associated with personal and business mobility, will not be negatively impacted in a mild trade war scenario.
'There could, however, be some restructuring between international and domestic travel and potentially a changed average distance of travel, while some upside potential exists as lower prices are likely to boost consumption,' Rystad concluded.
Overall, however short or long a trade war may turn out to be, higher production and lower demand growth implies the crude market may continue to remain rocky for some time yet.