Can Rising Demand for Jet Fuel Save China’s Rising Oil Consumption?

• Demand for China’s jet fuel has surged as air traffic recovers from the pandemic, providing a much-needed boost to the country’s refining sector.
• Despite strong growth in jet fuel demand, overall oil demand in China remains weak due to a slowing economy and lower consumption of gasoline and diesel.
• The rebound in jet fuel demand has helped offset weakness in other fuel segments, but is not enough to reverse the overall downward trend in China’s oil market.

A rebound in air traffic from China this year has boosted demand for jet fuel in the only bright spot for transportation fuel consumption in the world’s biggest crude importer.

Chinese refiners, which have seen low refining margins for gasoline and diesel production amid weak demand, are now ramping up fuel output to take advantage of higher margins in the segment as demand grows by double digits.

Airline passenger and flight numbers are up this year compared to 2023 after nearly three years of Covid-related lockdowns were lifted early last year.

As a result, demand for jet fuel is rebounding. But as a share of China’s total fuel consumption, jet fuel is far less than the shares of gasoline and diesel.

The increase in jet fuels could offset some of the weakness in road transport fuels, but cannot alone lift China’s oil consumption from its current period of warm demand.

“Double-digit growth in jet fuel consumption this year may offset the decline in gasoline and diesel,” Amy Sun, a consultant at GL Consulting, a think-tank at data provider Mysteel, told Bloomberg.

“But given its small market share, it can hardly reverse the trend in overall margins as fuel displacement accelerates amid a weaker economy.”

The decline in overall oil demand and lower Chinese crude imports result from weaker economic growth and weaker-than-expected demand for the fuel.

The housing crisis and weaker-than-expected fuel demand have hurt refining margins in recent months, prompting independent Chinese refiners to cut crude output.

China imported an average of 9.97 million barrels of oil per day last month, which was 12% lower than June’s figure and 3% lower than the daily average of imports for July 2023.

Apparently weaker demand and slowing imports from China have been the biggest drags on oil prices in recent months, often overshadowing tensions in the Middle East and a recent drop in U.S. commercial crude inventories.

By Tsvetana Paraskova for Oilprice.com

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