China’s leading oil companies, Cnooc Ltd., Sinopec, and PetroChina Co., have reported robust profits from exploration activities, reflecting the nation’s focus on energy security. However, their refining operations paint a more concerning picture, with profits in this sector plummeting, making it one of the weakest performers in China’s industrial economy.

China’s oil imports dropped by 2.4% during the first seven months of 2024 compared to the previous year. This decline marks the first non-pandemic-related reduction in nearly two decades. The decrease in imports is partly due to a significant increase in domestic crude production, which has reached record levels this year and is expected to continue growing. Additionally, China’s push towards decarbonization is reshaping its energy landscape. The rise of electric vehicles and natural gas-powered trucks is projected to displace 10% to 12% of gasoline and diesel demand in 2024, posing a growing challenge to local refiners.

China’s economy has struggled to regain momentum since the pandemic, with Beijing favoring a consumer-focused, high-tech growth model over large-scale infrastructure projects that would have boosted diesel and bitumen demand. The ongoing property crisis is further dampening demand for plastic-heavy products as fewer people are moving into new homes.

Historically, China has been the primary driver of global oil consumption growth, becoming the world’s largest importer of crude oil in the mid-2010s. However, the current economic challenges and a shift towards greener energy alternatives are raising concerns about the future of oil demand in the world’s biggest importer.

As China navigates these economic headwinds, the implications for global oil markets and exporters, particularly in the U.S. and Australia, could be significant if the trend towards reduced imports continues.

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